The San Francisco based Ripple Labs Inc. is currently engaged in a legal battle with the SEC over the latter’s request for a $2 billion penalty. They are advocating for a decrease, claiming that Terraform Labs’ recent $4.5 billion settlement is a point of reference.
Ripple’s lawyers also say that the proposed penalty for XRP sales is grossly unfair to the company. They believe it should be around $10 million, stating that there are no fraud charges and relatively small investors’ losses in their case compared to Terraform.
This legal development comes after a fierce battle with the SEC which alleges that Ripple conducted unlawful securities sales. In the Terraform Labs case, the SEC not only prohibited co-founder and former CEO Kwon Do-hyung from holding certain corporate positions but also requested a sizeable sum of money from the business.
The lawsuit against Ripple by the SEC was filed in December 2020, where the SEC accused Ripple of selling $1.3 billion through the sale of XRP that was not registered with the commission. The case is noteworthy for the cryptocurrency industry because of its possible implications for the categorization and subsequent regulation of digital assets.
The SEC answered Ripple’s argument in a letter to New York District Court Judge Analisa Torres in which the SEC said that the situations were not similar. The SEC stressed that Terraform Labs was insolvent, had promised to refund the money to investors, and had fired the culprits, while Ripple failed to do the same.
The SEC claimed that Ripple’s comparison was irrelevant because the $420 million civil penalty for Terraform Labs was measured differently. The penalty was roughly equivalent to approximately 12% of Terraform’s gross profit that stemmed from the violations, which was more than $3.5 billion.
Applying the same ratio to Ripple’s case, where the SEC seeks disgorgement of $876, the court said that the amount is “well beyond any reasonable notion of proportionality.” 3 million in gross profits, would trigger a civil penalty of $102. 6 million. The SEC argued that a small penalty would not serve the function of civil penalty statutes, which is to deter and enforce accountability.
The penalties that the SEC is now proposing for Ripple are quite high, coming to about $2 billion. This includes $198.2 million in prejudgment interest, $876.3 million in a civil penalty, and $876 thousand in a criminal penalty. 3 million in disgorgement. According to the SEC, such penalties should be sufficiently severe to discourage future misconduct and safeguard financial markets.
The case between the SEC and Ripple started in 2020 when the SEC accused Ripple of selling securities in an unregistered manner. Judge Torres held that Ripple did sell securities without registering them but to accredited investors only.
Earlier this year, the SEC challenged the redaction of some of Ripple’s papers and insisted that Ripple reveal the income received from the sales of XRP, the token in focus.
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