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Asserting that the situation is different from the ones in the Terraform case, the US Securities and Exchange Commission responded to Ripple’s request to have penalties reduced in its closely unrelenting battle with the regulator. Ripple was in legal trouble with the SEC since 2020; the latest occurred when it contrasted the fines imposed against Terraform Labs in a ‘notice of supplemental authority’ filed in the New York district court on June 13 against a $2 billion fine proposed by the regulator for selling to institutional investors.
Ripple’s Push for Lower Fines Compared to Terraform
Ripple said that compared to Terraform Labs, the fines suggested by the SEC were out of proportion. With Terraform, the SEC had settled for $4.47 billion including clauses prohibiting co-founder Do Kwon from serving as an officer or director of any public business and restricting participation in transactions involving “crypto asset securities.”
SEC’s Argument: Different Circumstances Between Cases
The SEC said on June 14 that the situation surrounding the Terraform issue differed greatly from that of Ripple. “In asking the Court to tether its penalty determination in this case to the settlement in Terraform, Ripple fails to note that the corporate defendant there is in bankruptcy, going ‘out of business for good,’ burning the keys to all of its crypto asset securities, agreed to return a significant amount to investors in those securities, and removes two of the board members in charge at the time of the violations,” the SEC’s lawyers said.
The SEC underlined that Ripple has consented to none of these remedies and said, “Ripple is agreeing to none of this relief—in fact, Ripple is agreeing to nothing.”
Legal and Financial Implications for Ripple
Using a comparison of the Terraform penalty to total sales—which would provide a 1.27% ratio—Ripple argued for reduced penalties. The SEC argued, however, that a more fitting analogy would be to the violative behavior’s gross profit—in Terraform’s instance, an 11.7% ratio. Using this percentage on Ripple’s $876.3 million in gross income would provide a much bigger penalty of $102.6 million than the $10 million Ripple suggested.
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Reacting to the SEC’s position over the weekend, Ripple Chief Legal Officer Stuart Alderoty said the court had made clear XRP is not a security and underlined there were no victims to reimburse. “The court made clear XRP is not a security,” Alderoty stated. “There are no ‘victims’ to make restitution. worst of all for the SEC, ripple is flourishing. At least SEC appears to have dropped its ridiculous $2B demand.
Alleging an unregistered securities, the SEC charged Ripple with generating $1.3 billion via XRP sales. The New York based judge Analisa Torres last year determined that variance of a blind bid allowed some of Ripple’s XRP transactions to not be in violation of security laws meanwhile some direct sales made by ripple to institutional investors would be securities.
The outcome of this particular case may have significant implications across regulating the management of cryptocurrencies and the disposal of virtual resources in the context of U. S. securities regulations as Ripple continues to dispute the proposed penalties.
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