SEC Refutes Ripple’s Argument to Reduce $2B Fine

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As a researcher with experience in securities law and regulatory compliance, I find the ongoing legal dispute between Ripple and the SEC intriguing. The SEC’s response to Ripple’s argument that the proposed $2 billion fine is excessive based on the Terraform Labs settlement seems reasonable given the significant differences between the two cases.

The SEC strongly opposes Ripple‘s effort to reduce the proposed $2 billion penalty in their ongoing legal battle, arguing that Ripple’s case is distinct from that of Terraform Labs.

In their filing to a New York court on June 13, Ripple cited the SEC’s previous settlement with Terraform Labs as a relevant comparison for the ongoing dispute between the two parties.

In a letter dated June 14, the SEC argued that Terraform Labs and its founder Do Kwon reached a $4.89 billion settlement, which included a $420 million civil penalty, due to their financial instability, the necessity of returning investor funds, and the dismissal of executives implicated in the regulatory infringements.

The SEC pointed out that likening Ripple to the Terraform settlement is misleading due to several key differences. For instance, Terraform is currently bankrupt, planning to cease operations permanently, has relinquished control over its crypto asset securities, reimbursed investors, and dismissed two of its highest-ranking board members.

The SEC stated, “Ripple is agreeing to none of this relief—in fact, Ripple is agreeing to nothing.”

The SEC countered Ripple’s point that the $420 million penalty equated to just over 1% of Terraform’s reported $33 billion total sales, arguing that this was not a fair or direct comparison.

As a researcher, I’ve discovered that the Securities and Exchange Commission (SEC) calculates the Terraform penalty based on a ratio of 11.7% of gross profits instead of sales. For instance, if Ripple’s gross profits amounted to $876.3 million, the resulting penalty would be approximately $102.6 million. This figure is significantly higher than the proposed penalty of $10 million that Ripple has suggested. The SEC contends that such a low penalty wouldn’t meet the objectives of the civil penalty statutes.

The SEC’s proposed penalties against Ripple amount to nearly $2 billion: $198.2 million for prejudgment interest, $876.3 million as civil penalties, and an extra $876.3 million in disgorgement payments.

Over the weekend, I came across a post penned by Stuart Alderoty, the legal chief at Ripple. His tone was less than favorable in response to the Securities and Exchange Commission’s latest statement.

Alderoty stated, “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.”

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2024-06-18 09:24