A federal judge questioned the propriety of the U.S. Securities and Exchange Commission’s $1.5 million settlement with Elon Musk, in a case alleging that the world’s richest person saved $150 million by allegedly skirting stock disclosure rules at public market shareholders’ expense.
But despite what she called “serious misgivings” and “red flags,” Washington, D.C. district court judge Sparkle L. Sooknanan signed off on a settlement whose terms even the SEC has admitted are unprecedented.
The settlement will see Musk’s trust—and not him—pay the $1.5 million civil penalty related to his 2022 takeover of Twitter, the social media site now known as X.
The SEC admits that it has never before “settled a Section 13(d) violation with a trust without the trustee or beneficiary,” judge Sooknanan wrote in a 12-page ruling Wednesday. And, she added, “the Trust seems like a particularly odd candidate for the SEC to break that new ground—after all, as mentioned, the Trust is a revocable trust with Mr. Musk as its sole trustee and beneficiary.”
Sooknanan then cited an article that states, “A revocable trust is basically just the settlor’s brokerage account in different clothes.”
The SEC previously told the court the trust in question is “the largest holder of Tesla stock in the world,” and valued at more than $180 billion. In addition to being the CEO of Tesla for 17 years, Musk is also the founder of SpaceX, which went public last month in the largest-ever IPO at a nearly $2 trillion valuation.
Despite her reservations with the settlement, Sooknanan’s ruling seemed to suggest her hands were tied. The court is “not a rubber stamp” nor an “ombudsman,” but could only evaluate the judgement as to whether it was so unreasonable it would make a mockery of the court.
“This is not to say that this settlement is run-of-the-mill,” Sooknanan wrote. “Whether the Executive Branch (through the SEC) has done enough to hold Mr. Musk to account for his alleged violations is, like many other issues, for our citizenry to decide at the ballot box.”
“Perhaps that is fair, or perhaps not”
The SEC sued Musk in January 2025, alleging that he failed to properly disclose his stake in Twitter.
According to the SEC’s case, the action against Musk was about a missed disclosure. Investors who cross a 5% ownership threshold in a company and are planning to engage strategically or influence the ownership of a public company have to disclose their stake within 10 calendar days of crossing the 5% threshold. The SEC alleged Musk didn’t make the disclosure because he knew it would drive up the stock price and thus cost him more to continue increasing his stake in Twitter. Authorities claimed he bought $500 million worth of Twitter shares after he was supposed to publicly disclose his portion of the company and saved himself $150 million by not doing so.
Sooknanan took issue with the penalty, noting that the SEC abandoned a previous effort to seek disgorgement of $150 million from Musk that could have compensated “Mr. Musk’s alleged victims, instead settling on a form of relief that would go into the government’s pocket.”
“Perhaps that is fair, or perhaps not,” Sooknanan wrote, “but query what that says about the propriety of settling in the first place.”
The SEC told the judge it dropped the request for disgorgement because it hasn’t “historically” obtained it in these kinds of violations, but that the $1.5 million penalty was the largest ever imposed for the type of violation at issue. Sooknanan said that point “obscures the whole story.”
“As the Court previously explained, comparisons to other enforcement actions are difficult given that the SEC alleges that Mr. Musk (or, if you prefer, the Trust) violated Section 13(d) in a manner that facilitated his takeover of Twitter and netted him $150 million in savings,” she wrote. “That bears repeating: Elon Musk, the richest person in the world with a net worth close to $1 trillion, allegedly ignored his obligation to file SEC disclosures at the expense of other investors to the tune of $150 million.”
However, as Sooknanan recounted, “the course of this litigation dramatically changed in May 2026.” At that point in what had been Musk’s ongoing battle with the SEC, the commission filed an amended complaint that added the trust as a defendant and then sought a consent judgment that would see the SEC drop its case against Musk. At the time, Musk was deeply embedded with President Trump after pumping millions into his election campaign and then serving as a special government employee on behalf of DOGE. Musk then fell out with Trump and resumed his work as the CEO of Tesla.
Odd timing
However, as Sooknanan recounted, “the course of this litigation dramatically changed in May 2026.” At that point in what had been Musk’s ongoing battle with the SEC, the commission filed an amended complaint that added the trust as a defendant and then sought a consent judgment that would see the SEC drop its case against Musk. At the time, Musk was deeply embedded with President Trump after pumping millions into his election campaign and then serving as a special government employee on behalf of DOGE. Musk then fell out with Trump and resumed his work as the CEO of Tesla.
Sooknanan wrote that the SEC said no penalty against Musk was a request from the man himself, and was granted as “a compromise by the SEC.”
She again flagged the odd timing in her opinion as she did previously, noting that the SEC’s amended complaint deleted a disgorgement demand of $150 million and came three minutes before the SEC and Musk asked for the consent judgement. She also noted that Musk’s counsel told the judge that the SEC’s lawyers had not been “fully read in,” at the time.
“Further, the structure of the consent judgment—that it would enter relief against the Trust and not against Mr. Musk—seemed as though ‘the Trust [was] being brought in for the sole purpose of Mr. Musk being able to say that no relief was entered against him in his personal capacity.’”
The SEC did not immediately respond to a request for comment, nor did counsel for Musk.
Efforts to reach the trust were unsuccessful.
