Ripple Makes Strong Case for Reduction in SEC Penalty, Cites Terraform Settlement in Appeal
Ripple Labs put forth a compelling argument in its legal battle against the US Securities and Exchange Commission (SEC) on June 13. Drawing parallels with the recent Terraform Labs settlement, Ripple is pushing for a reduction in the proposed penalty to $10 million. By highlighting this comparison, Ripple aims to challenge the SEC’s penalty proposal.
Insights into the Ongoing Ripple-SEC Settlement Dispute
In the ongoing legal feud between Ripple and the SEC, the company contends that the SEC’s proposed $2 billion penalty is excessive, as outlined in a “notice of supplemental authority.” Ripple’s legal team highlighted key distinctions between their case and Terraform Labs’. While Terraform faced fraud charges resulting in significant global losses, Ripple is solely accused of selling unregistered securities without any fraud allegations. They argue that the SEC’s pursuit of a similar penalty, despite the differing charges, is unjust.
Ripple’s attorney stated, “The civil penalty sought by the US SEC in Terraform demonstrates the unreasonableness of the civil penalty sought by the SEC in this (Ripple’s) case.” They pointed out that in comparable cases, the SEC has agreed to civil penalties ranging from 0.6% to 1.8% of the defendant’s gross revenues. Terraform’s settlement aligns with this pattern.
On June 13, New York District Court Judge Jed Rakoff approved the SEC and Terraform Labs settlement, which includes $3.6 billion in disgorgement fines, a $420 million civil penalty, and nearly $467 million in prejudgment interest. This followed Terraform Labs and former CEO Do Kwon agreeing to a $4.47 billion fine in their SEC fraud case on June 12. Kwon is also required to pay an $80 million civil fine and transfer $204.3 million to the company’s bankruptcy estate for investor repayment.
Ripple aims to use the Terraform Labs settlement to argue that the SEC’s penalty request is excessive and should be reduced to a more reasonable amount.
Insight into the Prolonged Ripple-SEC Legal Battle
Ripple has been embroiled in a lengthy legal dispute with the SEC since December 22, 2020. The SEC sued Ripple for allegedly raising over $1.3 billion through the unlawful sale of XRP tokens to both retail and institutional investors, claiming that XRP qualifies as unregistered securities.
In July 2023, a New York federal court ruled that while XRP sales on exchanges and through algorithms did not violate US securities law, sales to institutions did. Initially, the lawsuit also named Ripple’s CEO, Brad Garlinghouse, and Co-Founder, Chris Larsen, but the charges against them were dropped in October 2023.
In March 2024, the SEC proposed a recovery and civil penalty totaling $1.95 billion. Despite this, Ripple opposed the penalty request, urging the Court to reject the SEC’s injunction, disgorgement, and pre-judgment interest requests while advocating for a civil penalty not exceeding $10 million.
Ripple’s filing included a redacted paragraph detailing its revenue from institutional sales, taxes paid, and incurred losses, demonstrating that it had no gains to disgorge, a crucial argument in its defense against the SEC’s proposed penalties.
There is speculation within the crypto community that the Ripple-SEC saga might reach a conclusion by the end of 2024.