Ripple Cites Terraform Labs Settlement to Reduce SEC Penalty

Ripple, the blockchain firm behind XRP, is pushing for a significant reduction in the civil penalty proposed by the United States Securities and Exchange Commission (SEC). This effort follows a recent settlement between the SEC and Terraform Labs, which Ripple argues should set a precedent for a fairer penalty.

The SEC’s legal battle with Ripple began in December 2020, when the regulator accused Ripple of using XRP as an unregistered security to raise funds. This case has become one of the most high-profile legal disputes in the cryptocurrency industry. Originally, Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen were also named in the lawsuit, but charges against them were dropped in October 2023.

Ripple’s latest argument hinges on the SEC’s settlement with Terraform Labs. In this case, Terraform agreed to pay $4.5 billion, which included $3.6 billion in disgorgement and $420 million in civil penalties, roughly 1.27% of its gross sales. Ripple contends that this settlement provides a benchmark for a more reasonable penalty.

The SEC has demanded Ripple pay around $2 billion, including $876 million in disgorgement and $198 million in prejudgment interest. Ripple’s lawyers argue this figure is disproportionately high, especially since there are no allegations of fraud against Ripple and institutional investors did not suffer significant losses. They point out that in similar cases, penalties have ranged from 0.6% to 1.8% of gross revenues.

In a filing on June 13, Ripple’s legal team emphasized that the penalty sought by the SEC in the Terraform case further demonstrates the unreasonableness of the proposed penalty against Ripple. They suggest a penalty of no more than $10 million, consistent with other cases.

Judge Analisa Torres of the U.S. District Court for the Southern District of New York, who is presiding over the case, had previously ruled in July 2023 that XRP was not a security regarding programmatic sales on exchanges. This ruling has been a key point in Ripple’s defense. However, the timeline for the case remains uncertain, as the trial was adjourned with no set date for resumption.

Stephen Alderoty, Ripple’s Chief Legal Officer, criticized the SEC for seeking large penalties for publicity rather than focusing on effective regulation. He noted that such an approach often results in the SEC becoming a creditor in bankruptcy court, as seen in the BlockFi case.