Ripple Labs Argues SEC Penalty in XRP Case Should Not Exceed $10 Million

News | May 3, 2024 By:

On Monday, April 22, 2024, blockchain firm Ripple Labs urged a Manhattan federal judge to reject the U.S. Securities and Exchange Commission’s excessive $2 billion remedies request over Ripple’s registration violation relating to sales of the cryptocurrency XRP.

In a legal filing, Ripple fired back at the SEC’s proposed $2 billion in disgorgement and penalties, calling the agency’s requests “administrative overreach” and “draconian.” The firm argues that its conduct was not reckless or egregious and that it did not cause substantial investor losses. As such, Ripple asserts that any penalties should be capped at $10 million.

A summary judgment ruling in July found that Ripple’s institutional sales of XRP to sophisticated buyers between 2013-2014 constituted securities transactions that should have been registered. However, the court did not find fault with Ripple’s sale of XRP on public exchanges or its use of the token as a payment method.

Last month, the SEC argued Ripple should pay $876 million in disgorgement, $876 million in civil penalties, and $200 million in prejudgment interest. However, Ripple contends it has acknowledged the court’s decisions and the need to comply with securities laws going forward. The firm notes it has changed its XRP sales practices, amended contracts, and ensured buyers are accredited investors.

Ripple also refutes the SEC’s claims that it has not accepted responsibility, saying public statements emphasizing partial legal victories do not constitute mischaracterization. Additionally, the SEC withdrew allegations that Ripple’s leadership acted recklessly.

Regarding ongoing XRP sales through its On-Demand Liquidity (ODL) service, Ripple argues these transactions differ significantly from the institutional sales at issue. ODL uses XRP as a temporary bridge currency for cross-border payments, with users holding it for mere seconds without expectation of profit.

In summary, Ripple believes the SEC is overreaching in its remedies given the lack of evidence of harm to investors or market participants. It argues any penalty should be proportionate to comparable crypto cases, and that $10 million would suffice for a first-time, non-reckless violation.

The SEC stated it would respond to Ripple’s arguments through legal filings. Ripple’s chief legal officer publicly expressed confidence the judge will take a fair approach to remedies, calling the SEC’s demands further evidence of overaggressive regulation against cryptocurrency.

Please contact BlockTribune for access to a copy of this filing.