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SEC Criticizes Ripple’s Bid for $10M Penalty, Highlights Terraform Labs Settlement as Distinct

Last Updated June 17, 2024 11:29 AM
Giuseppe Ciccomascolo
Last Updated June 17, 2024 11:29 AM

Key Takeaways

  • The SEC $2 billion penalty for selling XRP to institutions is excessive, Ripple said.
  • Ripple argues it received unfair treatment compared to Terraform Labs.
  • The watchdog criticized Ripple, highlighting differences with Terraform’s case.
  • The Ripple’s case with the regulator is far from over.

The long-running legal battle between Ripple Labs and the US Securities and Exchange Commission (SEC) heats up again. Ripple is fiercely contesting the regulator’s proposed $2 billion fine for selling XRP to institutional investors.

The company argues this penalty is grossly unfair compared to settlements in similar cases, citing the recent example of Terraform Labs. However, the SEC criticized Ripple’s request, arguing it wouldn’t be enough.

Ripple Wants A Lower Penalty

Ripple is contesting  the massive $2 billion fine proposed by the SEC for selling XRP to institutional investors. They argue the penalty is unfair compared to other cases. The company behind XRP pointed to the recent $4.47 billion settlement by Terraform Labs, which faced accusations of fraud, as evidence of the SEC’s inconsistency. It emphasized that the SEC typically seeks penalties between 0.6% and 1.8% of a defendant’s revenue, and Terraform’s settlement falls within this range.

Ripple highlighted the key difference between their case and Terraform’s: no fraud is alleged in their situation, nor did institutional buyers suffer significant losses. It believes the SEC’s proposed fine is excessive and unprecedented. They requested the court reject it and set a more reasonable penalty of $10 million.

Ripple’s lawyers said: “The civil penalty sought by the SEC in Terraform highlights the unreasonableness of the penalty sought by the SEC in this case.”

Ripple initially contended that the company’s financial health was irrelevant to the case. However, the court disagreed, stating that withholding this information would be unjustified, particularly since it could be essential during the remedy phase of the lawsuit.

The SEC Counters Ripple’s Request

The SEC doesn’t agree with Ripple’s request of a lower penalty. In its response , the regulator highlighted that Terraform is now bankrupt and has agreed to return money to investors. Additionally, the company has dismissed the leaders responsible for the violations.

“Ripple is agreeing to none of this relief. In fact, Ripple is agreeing to nothing,” the SEC emphasized. The regulator said the cases of Ripple and Terraform Labs are not directly comparable.

Last week, the SEC settled  with Terraform Labs and Do Kwon for over $4.47 billion, including recovered funds and penalties. Kwon, the co-founder of Terraform Labs, is personally liable for over $204 million, although his extradition remains unclear.

The watchdog argues that the penalty for Terraform Labs was based on a much larger gross profit from violations (over $3.5 billion). Applying the same ratio to Ripple’s case would result in a much lower penalty – $102.6 million – than the SEC is seeking. “That low of a penalty would not satisfy the purposes of the civil penalty statutes,” the SEC argued.

Terraform Labs Agreed To Pay To Settle Its Case

Terraform Labs, the company behind the troubled TerraUSD stablecoin, reached a hefty settlement with the SEC on Wednesday, June 12, 2024, agreeing to pay a staggering $4.47 billion. This comes after a jury found them guilty of civil fraud in April.

The settlement also includes a $204 million contribution from Do Kwon, Terraform’s founder, who is currently facing separate criminal charges in the US and awaiting extradition from Montenegro.

A cloud of uncertainty hangs over the source of these funds. Terraform Labs filed for bankruptcy in January, reporting assets and liabilities between $100 million and $500 million – far short of the settlement amount.

South Korea, however, has taken steps to recoup some funds. In May, a court approved freezing Do Kwon‘s assets, estimated at around $176 million. This freeze covers his Seoul residence, other properties, vehicles, investments, and crypto holdings. Whether these frozen assets will be enough to cover the entire settlement remains to be seen.

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