TLDR
- Ripple’s proposed $10 million civil penalty is considered far too low and inadequate by regulators.
- Circumstances surrounding the $4.5 billion Terraform Labs settlement differed, as Terraform agreed to compensate investors and terminate responsible leaders, making direct case comparisons inapplicable.
- If applying the same ratio of penalty to profits as the Terraform case, regulators calculate Ripple’s appropriate penalty would be $102.6 million, not the proposed $10 million.
- Nearly $2 billion in total proposed penalties against Ripple – $876.3 million disgorgement of profits, an equal $876.3 million civil penalty, plus $198.2 million prejudgment interest.
- Dispute over whether penalty should be a percentage of all XRP sales versus solely profits from sales to institutions deemed unregistered securities offerings.
The Securities and Exchange Commission (SEC) has firmly rejected Ripple Labs’ latest request for a significantly reduced civil penalty in their ongoing legal battle.
Ripple had cited the SEC’s previous $4.5 billion settlement with Terraform Labs to argue for a penalty of no more than $10 million against itself.
However, the SEC fired back, stating that such a low penalty for Ripple would be inadequate and inappropriate given the circumstances.
In a letter to Judge Analisa Torres on June 14th, the SEC clarified that its settlement with Terraform Labs was structured differently due to the company’s bankruptcy and cooperation.
The @SEC is raging. Ripple defended itself – “agreeing to nothing.” The court gave clarity that XRP is not a security. There are no “victims” to compensate. And worst of all for the @SEC, Ripple is thriving. But at least @SEC seems to have abandoned its absurd demand for $2B. https://t.co/KVSkB9OqlH
— Stuart Alderoty (@s_alderoty) June 15, 2024
Terraform agreed to return funds to investors and had fired the leaders involved in the violations at the time. In contrast, the SEC noted that “Ripple is agreeing to none of this relief — in fact, Ripple is agreeing to nothing.”
The SEC also refuted Ripple’s comparison of the $420 million civil penalty against Terraform to Terraform’s $33 billion in gross sales as “not an apples-to-apples comparison.”
According to the SEC, it had measured Terraform’s penalty against the gross profits from the violative conduct, which it estimated to be over $3.5 billion. This means the $420 million penalty was nearly 12% of those profits.
Applying the same ratio to Ripple’s case, the SEC calculated that if Ripple’s penalty was proportional to the $876.3 million in profits that the SEC is seeking to disgorge, the appropriate civil penalty would be $102.6 million – significantly higher than Ripple’s proposed $10 million.
The SEC stated, “That low of a penalty would not satisfy the purposes of the civil penalty statutes.”
The SEC’s proposed penalties against Ripple total nearly $2 billion, composed of $876.3 million in disgorgement of profits from unregistered sales, another $876.3 million as a civil penalty, and $198.2 million in prejudgment interest.
This follows Judge Torres’s ruling in July 2023 that Ripple’s sales of XRP to institutional investors constituted unregistered securities offerings.
Notably, the SEC had previously objected to Ripple’s bid to seal certain financial information, arguing that Ripple should disclose the revenue it made from XRP sales deemed unregistered by the court.
The SEC maintains that Ripple’s penalty should be based on profits from those specific unregistered sales to institutions, rather than on total XRP sales as Ripple had suggested.
