SEC Fires Back at Ripple’s Argument for Lower Penalty Compared to Terraform Settlement

News | July 3, 2024 By:

On Friday, June 14, 2024, the U.S. Securities and Exchange Commission (SEC) sent a letter to U.S. District Judge Analisa Torres responding to a claim made by blockchain firm Ripple Labs in an ongoing lawsuit.

In the letter, the SEC fires back at Ripple Lab’s assertion that a recent SEC settlement with crypto project Terraform Labs supports capping Ripple’s potential penalty at a lower amount. Ripple had notified Judge Torres about the SEC’s $420 million settlement with Terraform. Judge Torres is currently considering penalties against Ripple for failing to register its XRP digital token as a security.

The SEC argues that the Terraform settlement cannot be directly compared to Ripple’s case. Terraform is currently undergoing bankruptcy and has agreed to shut down its operations entirely. It also consented to return $3.6 billion to investors and remove two board members involved in the violations.

In contrast, the SEC says Ripple is “agreeing to do nothing” and may continue similar conduct to what led to the original violation. While Terraform’s $420 million civil penalty equals around 1.27% of its $33 billion in gross sales, applying the same ratio to Ripple is unjustified.

Ripple had proposed capping its civil penalty at $10 million, about 1.27% of its estimated $876 million in gross profits from XRP sales. However, the SEC points out Ripple failed to consider this amount as a percentage of Terraform’s gross profits, not total revenues. Applying the proper 11.7% ratio of Terraform’s penalty to its gross profits, Ripple’s penalty would equal around $102.6 million.

Moreover, the SEC argues even this “low” penalty would not fulfill the legal purpose of deterring future violations. The agency has requested a $2 billion civil penalty against Ripple to reflect the seriousness of violating securities laws.

The SEC first charged Ripple with conducting an unregistered securities offering of XRP in 2020. Ripple has vigorously denied the allegations and vowed to fight the SEC’s “attack on crypto.” Last month, the SEC opposed Ripple’s attempt to seal certain financial records from the public in the ongoing legal proceedings. Judge Torres has yet to rule on this motion.

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