SEC and Ripple: Dispute Over $2 Billion Fine
The U.S. Securities and Exchange Commission (SEC) has objected to Ripple's attempt to use the Terraform Labs deal to oppose a proposed $2 billion fine.
Ripple stated that the $2 billion penalty requested by the SEC was excessive, and pointed out that the SEC only imposed a 1.27% penalty on Terraform Labs despite $33 billion in gross sales and fraudulent activities that destroyed over $40 billion in investor funds.
SEC's Objections
The SEC argued that Ripple's comparisons were inappropriate and its calculations inaccurate. The regulator stated that Ripple's comparison with the Terraform Labs deal is invalid because Terraform went bankrupt and accepted heavy penalties, while Ripple did not agree to such measures.
Key Differences
The SEC highlighted several key differences between the two cases. Terraform Labs is winding down its operations, destroying the keys to all cryptoasset securities, paying significant compensation to investors, and removing two board members involved in the violations. Ripple did not accept these measures.
SEC used the following statements:
“Verdicts in which cash-strapped defendants agree to expeditiously return funds to victims and voluntarily agree to cease their infringing conduct exceed the amount of penalty necessary to punish and deter an unquestionably wealthy defendant [like Ripple] who did not realize or admit to violating securities laws.” It doesn't help with decision making.”
Penalty Rate Calculation
The SEC argued that Ripple's comparison based on penalty rates was flawed because it ignored gross profit. Considering the gross profit, the appropriate penalty for Ripple is much higher than suggested. The commission stated that applying Terraform's penalty rate to Ripple's $876.3 million in gross profits would result in a penalty of $102.6 million, rather than the $10 million penalty that Ripple had proposed.
The financial follower made the following statements on the subject:
“Ripple avoids comparing the penalty for the Terraform deal to the gross profits of infringing conduct. This ratio ($420 million/$3.587 billion) is significantly higher: 11.7%. Applying this to a gross profit of $876.3 million, the SEC is asking the court to result in a penalty of $102.6 million, a figure much larger than the $10 million cap that Ripple insists on.”
Ongoing Legal Struggle
Ripple's legal battle with the SEC has been ongoing since 2020. At the time, the SEC accused Ripple of raising funds using XRP as an unregistered security. The case set an important legal precedent for the cryptocurrency industry last year.
Judge Analisa Torres ruled that XRP is not a security in programmatic sales. However, direct sales to institutional investors qualify as securities, he noted. Since the decision, the two sides have been fighting over appropriate penalties for these securities violations.
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