SEC settles Section 13(d) case with trust for first time
A federal judge on Wednesday approved the Securities and Exchange Commission’s $1.5 million settlement with Elon Musk over his 2022 failure to timely disclose his purchases of Twitter shares, but wrote that “the SEC’s decision-making in this case raises red flags” and that she had “significant misgivings” about the deal.
U.S. District Judge Sparkle Sooknanan wrote in a 12-page ruling that the settlement raised questions about why the SEC permitted a structure that allows Musk to claim exoneration. The SEC sued Musk in January 2025, alleging he violated disclosure rules by not reporting his Twitter stake when it surpassed 5% in early 2022; he disclosed it only after reaching 9%. The agency said the delay cost Twitter shareholders as much as $150 million.
The parties reached the settlement in May. The SEC said in a June court filing that the $1.5 million penalty was the largest ever for such a violation and reflected “compromises by all parties.”
Sooknanan focused on the decision to require Musk’s revocable trust — rather than Musk personally — to pay the fine. The SEC said the trust held the shares and that the arrangement was a compromise Musk requested.
“But one might ask why the proposed consent decree runs against the Trust and not Mr. Musk — other than allowing Mr. Musk to proclaim publicly that he has been cleared of wrongdoing — and why the SEC has permitted that result,” Sooknanan wrote.
She noted that the SEC had “never before ‘settled a Section 13(d) violation with a trust without the trustee or beneficiary’” and called the trust “a particularly odd candidate” for the agency to break new ground.
The judge said her role was limited. “In approving the Parties’ proposed consent judgment, the Court stresses that its role is limited. It may not ‘substitute its judgment’ for that of the parties,” Sooknanan wrote.
She said the agreement did not meet the “high threshold” for the court to strike it down despite her “significant misgivings.”