SEC Rebukes Ripple’s Plea for Reduced Penalty in XRP Case

The United States Securities and Exchange Commission (SEC) has firmly rejected Ripple Labs’ proposal to lower its penalty in the ongoing legal battle over unregistered securities. Ripple had sought a significantly reduced fine of $10 million, comparing its case to the recent settlement between the SEC and Terraform Labs. The SEC, however, argued that the circumstances between the two cases were markedly different and that a lower penalty for Ripple would not serve the purposes of civil penalty statutes.

On June 13, Ripple submitted a request to Judge Analisa Torres of the U.S. District Court for the Southern District of New York, advocating for a penalty of no more than $10 million. Ripple’s argument hinged on a comparison with Terraform Labs’ recent settlement with the SEC, which included a $420 million civil penalty as part of a larger $4.47 billion settlement. Ripple pointed out that Terraform’s penalty was roughly 1.27% of its gross sales of $33 billion, suggesting a similar ratio should apply to its own case.

The SEC promptly countered Ripple’s argument in a letter dated June 14, emphasizing that the cases of Ripple and Terraform Labs were not directly comparable. The regulator highlighted that Terraform Labs was bankrupt and had agreed to return funds to investors, cease operations, and remove leadership responsible for the violations. Ripple, on the other hand, had not agreed to any such measures.

The SEC further noted that Ripple’s comparison based on gross sales was misleading. The penalty for Terraform was calculated against the gross profit from its violative conduct, which was over $3.5 billion, yielding a penalty-to-profit ratio of nearly 12%. Applying this ratio to Ripple’s $876.3 million in gross profits from XRP sales would result in a penalty of $102.6 million, significantly higher than the $10 million Ripple proposed.

Ripple’s legal battle with the SEC dates back to 2020, when the regulator accused the company of raising $1.3 billion through the sale of unregistered securities in the form of XRP tokens. In July 2023, Judge Torres ruled that Ripple’s sales of XRP to institutional investors constituted unregistered securities transactions, while programmatic sales to retail investors did not.

The SEC’s total proposed penalties for Ripple amount to nearly $2 billion, which includes $876.3 million in disgorgement of ill-gotten gains, $198.2 million in prejudgment interest, and an additional $876.3 million in civil penalties. The regulator argued that a penalty of only $10 million would be insufficient to achieve the deterrent and punitive objectives of the civil penalty statutes.