Federal Judge Orders Ripple Labs to Pay $125M Penalty in SEC Crypto Case
On Wednesday, August 7, 2024, U.S. Judge Analisa Torres of the Southern District of New York granted the Securities and Exchange Commission’s motion for entry of final judgment against the cryptocurrency firm Ripple Labs.
While Judge Torres agreed that injunctive relief was appropriate against Ripple, she denied the SEC’s request for disgorgement of over $876 million, citing a recent appellate court decision. The judge also lowered the civil penalty sought by the SEC to $125 million.
The SEC had sued Ripple Labs and two of its executives in 2020, alleging that the company’s sales of cryptocurrency XRP violated securities laws, as the digital tokens were essentially unregistered securities. Ripple Labs, based in San Francisco, engages in the sale and distribution of XRP, having sold over 14.6 billion units worth around $1.38 billion since 2013.
However, the SEC argued these sales required registration as securities offerings under law. Ripple contested the characterization of XRP as securities. In her order, Judge Torres granted partial summary judgment to the SEC, finding that Ripple’s sales of XRP to large institutional investors met the definition of investment contracts. She denied summary judgment on other distributions and sales made directly to public buyers.
While Judge Torres upheld the need for injunctive relief against future securities law violations given Ripple’s liability and continued sales of XRP, she denied the SEC’s request for disgorgement of $876 million in alleged ill-gotten gains. Citing a recent Second Circuit decision, she found the SEC did not prove investors suffered actual pecuniary harm as a result of unregistered sales or lack of disclosure.
On the issue of civil penalties, Judge Torres lowered the SEC’s requested $877 million figure significantly to $125 million. Analyzing the investment contracts at issue, she determined 1,278 violations of securities law occurred, justifying the $125 million figure using a tiered analysis focusing on Ripple’s wrongdoing rather than maximum possible penalties.
With disgorgement and penalties lowered substantially, the judgment marks a mixed outcome for the SEC as it continues vigorous enforcement of registration requirements around cryptocurrency assets. For Ripple, however, the order brings some resolution while still resulting in a sizable civil penalty over its past XRP sales activities.
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