* SEC says $1.5 million settlement not tainted by

collusion

* Musk claimed SEC was politically motivated to sue him

* Musk accused of waiting too long to disclose Twitter

purchases

By Jonathan Stempel

June 1 (Reuters) - The U.S. Securities and Exchange

Commission defended its settlement with Elon Musk over his

purchase of Twitter shares, saying it reflected "compromises"

and was not tainted by collusion, after the judge overseeing the

case said the accord raised "red flags."

In a filing in the Washington, D.C. federal court, the SEC also

said in a footnote that the settlement if approved will allow

Musk to publicly deny its accusations, reflecting a recent

policy change governing defendants who settle enforcement

actions.

The settlement requires a trust in Musk's name to pay $1.5

million to resolve SEC claims that the world's richest person

took 11 days too long in March and April 2022 to disclose his

purchase of Twitter shares, letting him buy at low prices before

investors caught on.

Musk has said the delayed disclosure was inadvertent. He

ultimately paid $44 billion for Twitter in October 2022 and

renamed it X.

At a May 13 hearing, U.S. District Judge Sparkle Sooknanan

said she could not "rubber stamp" the settlement.

She questioned why the SEC fined the trust instead of Musk,

and was content to recoup just 1% of his $150 million of alleged

ill-gotten gains. The judge also said she must consider whether

the settlement served the public interest, and was not tainted

by collusion or corruption.

SEC SAYS PUBLIC BENEFITS FROM MUSK SETTLEMENT

In Monday's filing, the SEC said the "fair, reasonable, and

appropriate" settlement was "not the result of any improper

collusion between the parties," but rather "arose from arm's

length negotiations among counsel of record, and reflects

compromises from each side."

It also maintained that the $1.5 million penalty was the

largest of its type, and that settling with the trust mirrored

the SEC's practice in recent cases.

"The public benefits from an injunction that has the practical

effect of binding Musk whenever he acts through the Revocable

Trust, an investment vehicle that he appears to use to

manage much of his wealth," the SEC said.

Lawyers for Musk did not immediately respond to requests for

comment.

Musk, a former adviser to Republican President Donald Trump,

accused the SEC of being politically motivated and invading his

free speech rights by suing him six days before Democratic

President Joe Biden left the White House.

The Trump administration has curtailed some corporate

enforcement activity as SEC Chair Paul Atkins refocuses the

regulator's priorities.

Former SEC enforcement chief Margaret Ryan, who left abruptly in

March after just six months on the job, had clashed with agency

leaders over the direction of its enforcement program.