SEC Rejects Ripple Demand of Reducing Penalty Down from $2B

UTC by Bhushan Akolkar · 3 min read
SEC Rejects Ripple Demand of Reducing Penalty Down from $2B
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Ripple argued that Terraform Labs’ $420 million civil penalty was just around 1.27% of its “$33 billion gross sales”. However, the SEC rejected it stating that this is an apples-to-oranges comparison.

The US Securities and Exchange Commission (SEC) has rejected Ripple’s latest demand to lower the penalty from $2 billion saying that this won’t be enough.

Last week, Ripple cited SEC’s $4.5 billion settlement with Terraform Labs when it again requested Judge Analisa Torres of the United States District Court for the Southern District of New York to revise the penalty of no more than $10 million which would be far lower than the SEC’s proposed penalty of $876.3 million.

Ripple had argued that Terraform Labs’ $420 million civil penalty was just around 1.27% of its “$33 billion gross sales”. Responding to this, the SEC stated that this is an apples-to-oranges comparison.

Soon a day later, the SEC argued in its letter to Torres that its recent settlement with Terraform Labs and Do Kwon since the firm was already bankrupt and had agreed to return money to investors while firing those leaders “in charge at the time of the violations”. “Ripple is agreeing to none of this relief – in fact, Ripple is agreeing to nothing,” said the regulator.

The SEC applied Terraform’s penalty based on “the gross profit of the violative conduct”, amounting to over $3.5 billion, which represents nearly 12% of the total. Using a similar calculation, the SEC estimated that Ripple’s civil penalty would amount to $102.6 million if applied to the $876.3 million in gross profits the SEC sought to disgorge from Ripple.

“That low of a penalty would not satisfy the purposes of the civil penalty statutes,” the SEC said.

SEC Has Proposed Nearly $2B in Penalties against Ripple

As per the initial proposed plans, the US SEC had proposed Ripple a total penalty of $2 billion that included a civil penalty of $876 million, $198 million in pre-judgment interest, along with an additional $876.3 million in disgorgement.

The dispute between Ripple and the SEC dates back to 2020 when the SEC alleged that Ripple sold unregistered securities. A ruling by Judge Torres in July 2023 acknowledged Ripple’s violations but limited them to sales involving institutional investors.

Recently, in May, the SEC opposed Ripple’s attempt to seal financial records, urging the disclosure of revenues generated from XRP sales that Judge Torres previously determined were conducted without proper registration.

“The SEC is raging. Ripple defended itself, agreeing to nothing. The court provided clarity that XRP is not a security. There are no ‘victims’ to compensate. And worst of all for the SEC, Ripple is thriving. But at least the SEC seems to have abandoned its absurd demand for $2 billion,” Ripple’s Chief Legal Officer Stuart Alderoty stated.

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