FameEX Hot Topics | SEC Rejects Ripple’s Request for Reduced Penalty

The United States Securities and Exchange Commission (SEC) has criticized Ripple Labs’ recent request for a lower penalty, arguing that the proposed amount wouldn’t suffice. On June 13, Ripple cited the SEC’s settlement with Terraform Labs and sought a penalty of “no more than $10 million,” significantly lower than the SEC's suggested $876.3 million civil penalty.

The following day, the SEC responded in a letter to New York District Court Judge Analisa Torres, asserting that its $4.5 billion settlement with Terraform Labs and its co-founder Do Kwon was made under different circumstances. The settlement, which includes a $420 million civil penalty, was agreed upon because Terraform is bankrupt, committed to returning money to investors, and dismissed leaders responsible for the violations.

The SEC argued that Ripple’s situation is not comparable, noting that Ripple has not agreed to similar relief measures. Ripple’s reference to Terraform’s penalty, which was around 1.27% of its “$33 billion gross sales,” was deemed an “apples-to-oranges comparison” by the SEC. The regulator explained that Terraform’s penalty was measured against the gross profit from the violative conduct, which amounted to over $3.5 billion, translating to a nearly 12% ratio.

If the same ratio were applied to Ripple’s gross profits of $876.3 million, the civil penalty would be $102.6 million. However, the SEC argued that such a low penalty would not fulfill the purposes of the civil penalty statutes.

The SEC’s proposed penalties for Ripple total nearly $2 billion, including $198.2 million in prejudgment interest, $876.3 million in civil penalty, and another $876.3 million in disgorgement. The legal battle between Ripple and the SEC has been ongoing since 2020, when the SEC accused Ripple of selling unregistered securities. Judge Torres ruled that Ripple did indeed sell unregistered securities, but only to institutional investors.

Last month, the SEC objected to Ripple’s attempt to seal some of its financial information, insisting that the firm should disclose the revenue it earned from XRP sales. This ongoing dispute highlights the complexities and challenges of regulating and enforcing penalties in the rapidly evolving cryptocurrency market.

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