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Ripple Challenges SEC’s $2 Billion Fine, Citing Terraform Labs Case

Ripple Challenges SEC's $2 Billion Fine, Citing Terraform Labs Case

TL;DR

  • Ripple argues that the SEC’s proposed fine is disproportionate compared to the Terraform Labs case.
  • The SEC sought a $2 billion fine against Ripple, while Terraform Labs will pay $4.47 billion for significant fraud.
  • Ripple suggests that the appropriate fine in your case should not exceed $10 million.

In a new twist in the protracted legal battle between Ripple Labs and the United States Securities and Exchange Commission (SEC), the cryptocurrency company has filed a request to have a recent case considered as a reference to determine the fine it faces.

On June 13, 2024, Ripple filed a notice of supplemental authority with Judge Analisa Torres of the Southern District of New York, arguing that the SEC’s proposed $2 billion fine is disproportionate and unprecedented.

Ripple has based its argument on the recent settlement between the SEC and Terraform Labs.

In this case, Terraform Labs and its CEO, Do Kwon, were found guilty of carrying out one of the largest securities frauds in US history.

Despite the magnitude of the fraud, which involved the loss of more than $40 billion of investor funds, the agreed fine amounted to $4.47 billion.

This figure includes $3.5 billion in disgorgement of ill-gotten gains and $420 million in civil penalties, representing approximately 1.27% of Terraform Labs’ $33 billion gross sales.

Ripple highlighted that, unlike Terraform Labs, there are no fraud allegations against it.

Furthermore, it noted that institutional buyers of its XRP tokens did not suffer substantial losses.

The company maintains that in comparable cases, civil penalties agreed upon by the SEC generally range between 0.6% and 1.8% of the defendant’s gross income.

Based on this, Ripple argues that the fine requested by the SEC in its case is excessive and asks that it be reduced to no more than $10 million.

Ripple Challenges $2 Billion SEC Fine, Citing Terraform Labs Case

Comparison of Ripple with the Terraform Labs Case

Ripple’s argument focuses on proportionality and fairness in the SEC’s application of fines.

The company claims that the Terraform Labs case, which involves fraud and market manipulation, resulted in a proportionately smaller fine compared to gross sales.

In contrast, the proposed fine for Ripple, despite the absence of fraud, is significantly higher.

This disparity underlines, according to Ripple, the lack of consistency in SEC sanctions.

The background to this legal dispute dates back to SEC allegations that Ripple raised more than $1 billion through the sale of XRP tokens not registered as securities.

In a mixed decision last year, Judge Torres determined that Ripple’s programmatic sales of XRP did not violate securities laws, but that direct sales to institutional investors did.

With its recent filing, Ripple seeks to not only reduce the proposed fine, but also set a precedent for how penalties should be calculated in future cases.

By comparing its situation to that of Terraform Labs, Ripple attempts to highlight the need for a more fair and equitable approach by the SEC in imposing fines.

This strategy could influence not only the outcome of your case, but also how future legal disputes in the cryptocurrency space are handle.

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