Ripple Challenges SEC Penalty as Disproportionate, Citing Terraform Labs Settlement

By: Eva Baxter

Crypto firm Ripple has recently referenced the settlement between the US Securities and Exchange Commission (SEC) and Terraform Labs to contest the financial regulator's proposed $2 billion penalty. In a notice of supplemental authority filed on June 13 with Judge Analisa Torres of the Southern District of New York, Ripple argued that the SEC's demands against the company were unreasonable and unfair.

Ripple highlighted that bankrupt Terraform Labs and its CEO Do Kwon were found liable for executing one of the largest securities frauds in US history. They were only required to pay a 1.27% civil penalty for their $33 billion gross sales. On June 12, Terraform agreed to pay $4.47 billion in fines—$3.5 billion in disgorgement and $420 million for civil penalties—to settle its case with the SEC.

The firm stated that Terraform's penalty aligned with the regulator's practice of agreeing to civil penalties ranging from 0.6% to 1.8% of the defendant's gross revenues. However, Ripple pointed out that the SEC's demands were far greater in its case despite the absence of any allegations of fraud. The company also noted that institutional buyers did not suffer substantial losses.

Consequently, Ripple requested the court to reject the SEC's proposed penalty and impose a civil penalty not exceeding $10 million. Ripple stated, 'Terraform thus confirms that the Court should reject the SEC’s disproportionate and unprecedented request and that an appropriate civil penalty would be no more than $10 million.'

Over the past years, the SEC and Ripple have been locked in a legal battle. The regulator accuses the crypto firm of raising more than $1 billion by selling unregistered security tokens. Last year, Judge Torres issued a mixed ruling. She declared that Ripple's programmatic sales of XRP did not violate securities laws but also ruled that the direct sales of XRP to institutional investors were considered securities.