SEC Defends Settlement With Musk After Judge Cites ‘Red Flags’

A proposed settlement between Elon Musk and the Securities and Exchange Commission to end the agency’s Twitter Inc. stake lawsuit came after almost a year of negotiations, attorneys for the agency said Monday after a judge raised concerns about the deal.

“The $1.5 million civil penalty aligns with the seven-figure penalty that the SEC’s counsel of record insisted upon since negotiations began in earnest and it reflects a concession by defendants, who advocated in settlement discussions for a much smaller penalty,” SEC attorneys wrote in a court filing.

They added it also accounts for the “litigation risk and significant public resources that would be required to address appeals” and emphasized it would be a record penalty for this type of case.

The attorneys submitted the memo in response to US District Judge Sparkle Sooknanan citing “red flags” about the proposed penalty, such as why the SEC wanted to settle the case with a trust related to Musk and whether the billionaire was getting special treatment in the case.

“I am not going to rubber stamp this settlement and I cannot rubber stamp this settlement,” Sooknanan said in May.

The SEC sued Musk in January 2025, alleging Musk cheated Twitter shareholders in 2022 out of more than $150 million by failing to timely report that he was amassing shares in the social media company.

Musk later bought the company and renamed it X.

The SEC filed its lawsuit days before President Donald Trump took office. Musk at the time was a key Trump ally who had donated hundreds of millions of dollars to help him get elected. He later had a public falling out with the president.

The SEC originally sought a civil penalty and a return of illegal profits, plus interest. The latest proposed deal, which requires court approval, represents only a civil penalty.

© 2026 Bloomberg L.P. All rights reserved. Used with permission.