SEC Rejects Ripple's Bid to Lower Fines

SEC Rejects Ripple's Bid to Lower Fines

BlockchainLaw

By Jakub Lazurek

18 Jun 2024 (25 days ago)

3 min read

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US SEC Pushes Back Against Ripple's Efforts to Lower Fines, Says Firm 'Is Agreeing to Nothing'

The U.S. Securities and Exchange Commission (SEC) firmly opposed Ripple’s attempt to reduce its fines, stating that “Ripple is agreeing to nothing.” This response followed Ripple's comparison of the SEC's proposed $2 billion fine for selling XRP to institutional investors with the penalties given to Terraform Labs.

Ripple has been in a legal fight with the SEC since 2020. The SEC accuses Ripple of raising $1.3 billion through selling XRP, which it says is an unregistered security. In a notice filed on June 13, Ripple compared its case to the recent Terraform Labs settlement, arguing that the $2 billion fine proposed by the SEC is too high.

The SEC argued that the circumstances of the two cases are very different. On June 14, the SEC noted that Terraform Labs is in bankruptcy, is shutting down, returning a significant amount of assets to investors, and removing key board members. By contrast, Ripple has not agreed to any similar measures. The SEC’s lawyers emphasized, “Ripple is agreeing to none of this relief—in fact, Ripple is agreeing to nothing.”

The Terraform settlement includes preventing co-founder Do Kwon from serving as an officer or director of any public company and barring involvement in transactions involving "crypto asset securities."

Ripple, in its push for lower fines, noted that its case with the SEC does not involve fraud allegations. Ripple suggested its penalty should be no more than $10 million, based on a comparison with Terraform’s penalty relative to its gross sales, which would be a 1.27% ratio for Ripple.

However, the SEC argued that the comparison was not valid. The SEC said Ripple’s comparison ignored the difference in gross profits. For Terraform, the penalty to gross profit ratio was 11.7%. Applying this ratio to Ripple’s gross profits of $876.3 million would result in a much higher penalty of $102.6 million, far more than the $10 million Ripple suggests.

Ripple's Chief Legal Officer, Stuart Alderoty, responded on X, saying that “the court clarified that XRP is not a security.” Alderoty argued there were no victims to compensate and noted that Ripple is thriving, criticizing the SEC for its high penalty demands.

The SEC's case against Ripple involves the sale of XRP, which the SEC claims are an unregistered security. Judge Analisa Torres of New York ruled last year that some of Ripple’s XRP sales, specifically those done through a blind bid process, did not violate securities laws. However, she ruled that other direct sales of XRP to institutional investors were securities transactions.

Ripple's efforts to reduce its fines come amid ongoing legal battles and regulatory scrutiny. The comparison with Terraform Labs, which agreed to significant penalties and operational changes, highlights the complexities of regulatory enforcement actions within the crypto industry.

The SEC's firm stance shows its intent to enforce strict penalties for securities law violations, especially in cases involving large sums raised through alleged unregistered securities. Ripple's resistance to these penalties and arguments for lower fines reflect its broader strategy to contest the SEC's claims and minimize the impact on its business.

In summary, the SEC remains firm against Ripple’s attempts to reduce its fines, citing Ripple’s lack of agreement to significant relief measures compared to Terraform Labs. Ripple continues to push back, leveraging legal rulings and market performance to argue against the SEC’s proposed penalties, while the broader implications of this case continue to unfold in the evolving regulatory landscape of digital assets.

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