A federal judge cited “red flags” about a proposed $1.5 million deal between Elon Musk and the Securities and Exchange Commission to end the agency’s lawsuit alleging the world’s richest person waited too long in 2022 to reveal his growing stake in Twitter Inc.
“I am not going to rubber stamp this settlement and I cannot rubber stamp this settlement,” US District Judge Sparkle Sooknanan said on Wednesday, adding that details in the proposed settlement “raise red flags for me.”
Sooknanan ordered attorneys for Musk and the SEC to answer questions by June 1 about how the parties reached the deal, including why the proposed settlement involves a trust tied to Musk instead of the billionaire himself.
“Is Mr. Musk getting some kind of special treatment in this case?” she asked.
The proposed settlement was reached earlier this month to resolve SEC claims that the billionaire missed the deadline to disclose that he’d accumulated more than 5% of Twitter’s stock.
Failing to reveal his holdings in the social media company meant Musk could amass shares on the cheap, the SEC said in a lawsuit filed days before President Donald Trump took office in January 2025. That move cost Twitter shareholders more than $150 million, the regulator said at the time. Musk later bought the company in 2022 and renamed it X.
When the SEC announced its $1.5 million settlement — to be paid by a trust affiliated with Musk — the agency said it had to be approved by a federal judge. That week, Sooknanan said she wanted to hold a hearing to consider if “the settlement is fair, adequate, reasonable and appropriate” and “whether it was tainted by improper collusion or corruption.”
The deal is much less than the $200 million settlement that Musk’s attorney said the agency initially sought, as Bloomberg reported in January 2025.
An SEC spokesperson said last week the settlement would be a record penalty for these types of cases while Musk’s attorney called it a “small fine.”
Sooknanan questioned the size of the penalty, noting that $1.5 million amounts to 1% of the money that Musk allegedly cost Twitter shareholders.
Attorneys for Musk and the SEC agreed to compile answers to the questions.
“These are important, fair questions. Happy to answer them,” SEC attorney Nicholas Grippo said.
Photo: Photographer: Andrew Harrer/Bloomberg
Copyright 2026 Bloomberg.
Topics
Legislation
Interested in Legislation?
Get automatic alerts for this topic.
