SEC's Stance on Ripple's Proposed Penalty Reduction
The United States Securities and Exchange Commission (SEC) has firmly rejected Ripple Labs' recent request for a lower civil penalty. Ripple had sought to reduce its penalty to a maximum of $10 million, a figure significantly lower than the SEC's proposed $876.3 million penalty.
On June 13, Ripple referenced the SEC’s settlement with Terraform Labs in its appeal to Judge Analisa Torres of the United States District Court for the Southern District of New York. Ripple argued for a more lenient penalty, citing Terraform Labs' settlement as a precedent.
SEC's Response to Ripple's Argument
In a June 14 letter to Judge Torres, the SEC countered Ripple’s argument by emphasizing that the settlement with Terraform Labs and its co-founder Do Kwon was fundamentally different. The $4.5 billion settlement, which included a $420 million civil penalty, was reached under specific conditions: Terraform Labs was bankrupt, agreed to return money to investors, and had removed the leaders responsible for the violations.
"Ripple is agreeing to none of this relief — in fact, Ripple is agreeing to nothing," the SEC stated. The regulator argued that Ripple's comparison of Terraform’s $420 million civil penalty to its $33 billion gross sales was not valid. Instead, the SEC assessed Terraform’s penalty based on "the gross profit of the violative conduct," estimated at over $3.5 billion, resulting in a penalty ratio of nearly 12%.
Ripple's Civil Penalty Calculation
Applying the same 12% ratio to Ripple’s case, the SEC contended that Ripple's civil penalty would be approximately $102.6 million if based on the $876.3 million in gross profits that the SEC requested to be disgorged. The SEC maintained that such a low penalty would fail to meet the objectives of the civil penalty statutes.
SEC's Proposed Penalties for Ripple
The SEC has proposed nearly $2 billion in penalties for Ripple, including $198.2 million in prejudgment interest, $876.3 million in civil penalty, and an additional $876.3 million in disgorgement.
Background of the Legal Battle
Ripple and the SEC have been embroiled in legal battles since 2020, when the SEC accused Ripple of selling unregistered securities. Judge Torres ruled in July 2023 that Ripple did indeed sell unregistered securities, but only to institutional investors.
In May, the SEC objected to Ripple’s attempt to seal certain financial records. The regulator argued that Ripple should disclose the revenue generated from XRP sales, which Judge Torres had ruled were unregistered.
Conclusion
The SEC's firm stance against Ripple’s plea for a lower penalty underscores the regulator’s commitment to enforcing securities laws and ensuring that penalties serve as a deterrent to future violations. The outcome of this legal battle will have significant implications for both Ripple and the broader cryptocurrency industry.
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