The U.S. Securities and Exchange Commission (SEC) has clapped back against Ripple’s latest bid to reduce the severity of its fines.
In a legal filing last week, the San Francisco payments company pointed to the SEC’s recent $4.47 billion settlement with Terraform Labs as a demonstration of the “unreasonableness” of the civil penalty brought by the SEC in their own case.
The SEC, however, argues that settlements have “limited value” in determining penalties for litigation, according to court documents shared by James K. Filan, a defense lawyer and crypto legal expert.
“In asking the Court to tether its penalty determination in this case to the settlement in Terraform, Ripple fails to note that the corporate defendant there is in bankruptcy, going ‘out of business for good,’ burning the keys to all of its crypto asset securities, agreeing to return a significant amount to investors in those securities, and removing two of the board members in charge at the time of the violations.
The SEC took all these factors in agreeing to a settlement, and repeatedly cited them as the facts relevant for the court to approve the settlement under applicable law. Ripple is agreeing to none of this relief – in fact, Ripple is agreeing to nothing.”
Terraform’s settlement, which materialized after the stablecoin firm was found liable for defrauding investors of $40 billion in the 2022 TerraUSD and Luna collapse, includes $4.05 billion in disgorgement plus interest, in addition to a civil fine of $420 million and a penalty of $80 million for the firm’s disgraced founder, Do Kwon.
Ripple’s lawyers argue that the $420 million civil penalty represents approximately 1.27% of Terraform Labs’ $33 billion gross sales.
“As Ripple’s opposition explained, in comparable (and even in more egregious) cases, the SEC has agreed to civil penalties ranging from 0.6% to 1.8% of the defendant’s gross revenues. Terraform fits that pattern. Here, by contrast, the SEC seeks a civil penalty far exceeding that range, even though there are no allegations of fraud in this case and Institutional Buyers did not suffer substantial losses.”
But the SEC claims Ripple’s comparison doesn’t hold water.
“Ripple avoids comparing the Terraform settlement’s penalty to the gross profit of the violative conduct. That ratio ($420 million/$3.587 billion) is significantly higher: 11.7%. Applying it to the $876.3 million in gross profits the SEC here asks the Court to disgorge results in a much larger figure, a $102.6 million penalty, than the $10 million ceiling Ripple insists on. And, for the reasons previously set forth, that low of a penalty would not satisfy the purposes of the civil penalty statutes.”
The SEC first sued the San Francisco-based payments firm in late 2020 for allegedly selling XRP as an unregistered security.
Last year, US District Judge Analisa Torres ruled that Ripple’s automated, open-market sales of XRP did not constitute security offerings, contrary to what the SEC alleged.
The judge did, however, side with the SEC’s claim that Ripple’s sales of XRP directly to institutional buyers were securities offerings.
In March, the SEC asked the court to order the firm to pay $876,308,712 in disgorgement, $198,150,940 in prejudgment interest and a $876,308,712 civil penalty, a total of around $1.95 billion.
Ripple’s lawyers have argued that $10 million would reflect an appropriate percentage of the company’s actual gross revenues from pre-complaint institutional sales.
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