A federal judge reportedly said she will not rubber-stamp a settlement between Elon Musk and the Securities and Exchange Commission, saying the deal raises red flags and needs scrutiny over whether Musk is getting special treatment from the Trump administration.
As we reported last week, the Trump administration agreed to let Musk pay a $1.5 million fine to settle a lawsuit that originally sought at least $150 million. In 2022, before buying Twitter outright, Musk purchased a 9 percent stake in the social network and failed to disclose it within 10 days as required under US law. The SEC lawsuit filed during the Biden administration said the late disclosure allowed Musk to keep buying shares at artificially low prices and underpay shareholders by at least $150 million.
Under the settlement with the SEC, a trust in Musk’s name would pay a $1.5 million civil penalty to the government and not admit that Musk committed any violation. The deal requires court approval, and Judge Sparkle Sooknanan expressed skepticism at a hearing yesterday in US District Court for the District of Columbia.
“I am not going to rubber-stamp this settlement, and I cannot rubber-stamp this settlement,” the judge said, Bloomberg reported. “Is Mr. Musk getting some kind of special treatment in this case?” Sooknanan was also quoted as saying.
Sooknanan said that dropping the demand for $150 million and imposing the settlement terms on a trust instead of Musk himself are both “red flags,” a Reuters report said. “Sooknanan also noted that SEC lawyers at a prior hearing to discuss the case had appeared surprised when lawyers for Musk revealed that they had been in settlement talks with the agency,” Reuters reported. Sooknanan called that fact another red flag.
Musk, SEC ordered to answer questions
After yesterday’s hearing, Sooknanan issued a short order telling attorneys for Musk and the SEC to submit a brief by June 1 “addressing the Court’s questions as stated on the record at today’s hearing.” Bloomberg’s report said Sooknanan told attorneys that the brief should explain “how the parties reached the deal, including why the proposed settlement involves a trust tied to Musk instead of the billionaire himself.”
SEC attorney Nicholas Grippo told the judge, “These are important, fair questions. Happy to answer them,” according to Bloomberg. The SEC historically operated with independence from the White House until Trump issued an executive order declaring that independent agencies must take orders from the president.
In a previous order last week, Sooknanan said that precedents require the court to consider whether “the settlement is fair, adequate, reasonable and appropriate under the particular facts,” “whether it resolves the claims in the complaint, and whether it was tainted by improper collusion or corruption.”
The SEC filed the lawsuit in January 2025 with only days remaining in the Biden presidency. In December 2024, SEC attorneys reportedly asked Musk to pay over $200 million to settle the allegations.
The disclosure rule that Musk was accused of violating is enforced under a “strict liability” standard, meaning that it doesn’t matter whether a rule violation was intentional or inadvertent. Musk unsuccessfully tried to get the lawsuit moved to a Texas court, and Sooknanan rejected his motion to dismiss the case in February 2026.
