The United States Securities and Exchange Commission (SEC) has strongly opposed Ripple Labs’ recent request for a reduced financial penalty, asserting that the company’s proposed $10 million settlement is significantly insufficient compared to the SEC’s suggested penalty.
Ripple’s Request for a Reduced Penalty
On June 13, 2024, Ripple Labs appealed to Judge Analisa Torres of the United States District Court for the Southern District of New York, seeking a penalty reduction to “no more than $10 million.” Ripple’s plea came in the wake of the SEC’s recent settlement with Terraform Labs, suggesting that a lower penalty would be more appropriate for their case.
The SEC, however, had proposed a much larger penalty for Ripple, totaling $876.3 million. This stark difference in proposed amounts has become a central point of contention in the ongoing legal proceedings between the SEC and Ripple.
In a letter dated June 14, 2024, the SEC responded to Ripple’s request, emphasizing the substantial differences between the cases of Ripple and Terraform Labs. The SEC highlighted that Terraform’s $4.5 billion settlement included a $420 million civil penalty due to its bankruptcy status, commitments to refund investors, and the removal of leaders responsible for the violations.
“Ripple is agreeing to none of this relief — in fact, Ripple is agreeing to nothing,” the SEC stated, underscoring that Ripple has not made any comparable commitments or concessions.
Comparison of Penalty Ratios
Ripple’s argument relied on comparing the SEC’s penalty against Terraform’s gross sales to suggest that their own penalty should be similarly reduced. Ripple noted that Terraform’s $420 million penalty represented approximately 1.27% of its $33 billion in gross sales.
The SEC refuted this comparison, explaining that Terraform’s penalty was measured against the gross profit from the violative conduct, which was over $3.5 billion. This results in a nearly 12% ratio, significantly higher than the percentage applied to gross sales. Applying this same 12% ratio to Ripple’s gross profits from its alleged violations, the SEC argued, would result in a civil penalty of approximately $102.6 million, much higher than Ripple’s suggested $10 million.
“That low of a penalty would not satisfy the purposes of the civil penalty statutes,” the SEC contended, insisting that a substantial penalty is necessary to uphold the statutes’ objectives.
| Penalty Component | SEC’s Proposed Amount | Ripple’s Suggested Amount |
|---|---|---|
| Civil Penalty | $876.3 million | $10 million |
| Disgorgement | $876.3 million | Not specified |
| Prejudgment Interest | $198.2 million | Not specified |
| Total Proposed Penalty | Nearly $2 billion | $10 million |
The legal battle between the SEC and Ripple has been ongoing since 2020. The SEC accused Ripple of selling unregistered securities through its XRP token, a claim that Ripple has vigorously contested. In a ruling in July 2023, Judge Torres found that Ripple did indeed sell unregistered securities, but only in transactions involving institutional investors. This nuanced ruling has continued to fuel the complex legal dynamics between Ripple and the SEC.
Recent Developments and SEC’s Stance
In May 2024, the SEC also opposed Ripple’s attempt to keep certain financial details sealed. The SEC argued that Ripple should disclose the revenue generated from the sale of XRP tokens, which Judge Torres ruled were sold as unregistered securities. This push for transparency highlights the SEC’s ongoing efforts to hold Ripple accountable for its actions and to enforce regulatory compliance in the cryptocurrency market.
The SEC’s rejection of Ripple’s plea for a lower penalty underscores the regulator’s firm stance on enforcing substantial penalties to maintain the integrity of financial regulations. As Ripple and the SEC continue their protracted legal battle, the final outcome will have significant implications for the cryptocurrency industry and its regulatory landscape. With substantial penalties at stake and ongoing debates over compliance and transparency, the Ripple case remains a pivotal moment in the evolving relationship between digital assets and regulatory authorities.
