SEC Rejects Ripple’s Argument

SEC Rejects Ripple’s Argument

LawSEC

By Jakub Lazurek

15 Jun 2024 (27 days ago)

3 min read

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The SEC refutes Ripple's comparison to Terraform Labs in court, insisting on a $2 billion fine due to significant differences between the cases.

The US Securities and Exchange Commission (SEC) has rejected Ripple's attempt to use the Terraform Labs settlement to contest a proposed $2 billion fine. The regulator declared that the comparison is invalid due to major differences between the cases.

Ripple contended that the SEC's demand for a $2 billion penalty is too high, noting that the SEC only sought a 1.27% penalty from Terraform Labs, despite its $33 billion in sales and fraudulent activities causing over $40 billion in losses.

The SEC criticized Ripple's use of inappropriate comparisons and flawed calculations. The regulator asserted that comparing Ripple’s situation to Terraform Labs is invalid because Terraform Labs is bankrupt and agreed to severe penalties, unlike Ripple.

The SEC highlighted several significant differences between the two cases. Terraform Labs is shutting down operations, destroying keys to all its crypto asset securities, agreeing to substantial restitution to investors, and removing two board members involved in the violations. Ripple has not agreed to any such measures.

The SEC emphasized that penalties for wealthy defendants like Ripple, who do not recognize their violations, should be higher. Ripple’s comparison based on penalty ratios is flawed because it ignores gross profit. The appropriate penalty, considering gross profit, would be much higher than Ripple suggested.

The SEC argued that applying Terraform’s penalty ratio to Ripple’s $876.3 million in gross profits would result in a $102.6 million penalty, not the $10 million Ripple proposed. Ripple avoids comparing the Terraform settlement's penalty to the gross profit of the violative conduct, which is significantly higher.

Ripple has been in a legal battle with the SEC since 2020. The SEC accused Ripple of using XRP as an unregistered security to raise funds. Last year, Judge Analisa Torres ruled that XRP is not a security in exchange programmatic sales but is considered a security in direct sales to institutional investors. Since then, Ripple and the SEC have been disputing the appropriate penalties.

The SEC insists that Ripple's argument is flawed, stressing that penalties should reflect the seriousness of violations and Ripple's financial status. The comparison to Terraform Labs, which is winding down and agreed to severe penalties, does not apply to Ripple’s situation.

Ripple claims that the SEC's $2 billion fine is disproportionate and should be aligned with the ratio used for Terraform Labs. However, the SEC argues that this ratio is inappropriate for Ripple due to the differences in financial conditions and actions of the two companies.

The SEC’s dismissal of Ripple’s comparison to the Terraform Labs settlement underscores the complexities in determining appropriate penalties in high-profile cryptocurrency cases. This ongoing legal battle is crucial for the regulatory landscape and will have significant implications for Ripple and the broader cryptocurrency market.

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