Ripple’s New Counter Against SEC to Reduce Fine

Ripple, which is in the crosshairs of the US exchange watchdog for its crypto XRP, believes that the fine demanded from it by the SEC is completely “disproportionate”.

Ripple wants to drastically reduce the amount of fine hanging over his head. In a press release published by the company’s lawyers on June 13, Ripple estimates that it should pay no more than $10 million in fines, compared to the $2 billion requested by the SEC.

The financial penalties requested by the US stock market watchdog (Securities and Exchange Commission or SEC) are “disproportionate”, they say Rippling.

Since December 2020, a long-term legal battle has been going on against the crypto company Ripple and the SEC. The US stock market watchdog has taken Ripple, the originator of the XRP crypto-token, to court for offering unregistered financial securities. The SEC believes Ripple sold $1.3 billion worth of XRP to investors without registering the cryptocurrency as a security or financial security.

In July 2023, Ripple won a partial victory, with a US justice ruling that the cryptocurrency XRP was not actually a financial security. It therefore did not require registration with the SEC.

Size nuances

However, there was a crucial nuance in this decision. If the XRP token was not considered a financial security for individuals, it was indeed qualified as a security for institutional investors and therefore fell under the SEC regulations for a portion of the issued tokens. This is the case with the $728.9 million worth of XRP that Ripple sold to investment funds and other institutional investors.

It is for this reason that the SEC is demanding a fine for XRP sold to these institutions. In March 2024, the SEC sought $2 billion in fines and penalties against Ripple.

And so on June 13, Ripple’s lawyers sharply challenged the amount of the fine. To that end, the lawyers refer to another legal case: the case between the SEC and Terraform and its founder Do Kwon.

A US jury concluded that Do Kwon misled investors into believing in the reliability of his crypto company. In the spring of 2022, the Terraform Labs ecosystem’s luna cryptocurrency and UST stablecoin collapsed within days, causing investors to lose more than $40 billion. On June 12, Terraform Labs entered into a civil settlement with the SEC. Terraform Labs and its founder agreed to pay a total of $4.55 billion (including $420 million in civil penalties).

However, Terraform is in the process of liquidation and it is unlikely that the US authorities will recover all these fines and penalties.

“Disproportionate” fine

Regardless, in that settlement, the $420 million civil penalty represents “approximately 1.27% of Terraform’s $33 billion” in revenue (generated since its inception), Ripple’s lawyers say. And in cases comparable to the one between Ripple and the SEC, the exchange watchdog has “accepted civil penalties ranging from 0.6% to 1.8% of the gross revenues” of the companies involved, they continue.

The settlement in the Terraform case “thus confirms that the court should reject the SEC’s unreasonable and unprecedented request and that an appropriate civil penalty for Ripple would not exceed $10 million,” the lawyers continued.

Stuart Alderoty, Ripple’s chief legal officer, also stated on X (formerly Twitter) on June 15 that “the SEC was pissed.” “Ripple has fought back and is not accepting anything. There are no “victims” to be compensated. And even worse for the SEC is that Ripple is “booming”.

Sébastien Bordry with Jean-Louis Dell’Oro

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