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Ripple Labs Challenges SEC’s $1.95 Billion Fine Proposal, Suggests $10 Million as Adequate

ByDayne Lee

Apr 26, 2024

Ripple Labs Challenges SEC’s $1.95 Billion Fine Proposal, Suggests $10 Million as Adequate

On Monday, Ripple Labs formally opposed a significant enforcement action by the U.S. Securities and Exchange Commission (SEC), which seeks a staggering $1.95 billion in penalties. The company’s legal filing in a New York court contested the SEC’s demands vigorously, proposing instead a more moderate civil penalty of $10 million.

Background of the Legal Battle

This legal conflict stems from the SEC’s allegations that Ripple Labs violated federal securities laws through its sales of XRP, a digital asset. While the court acknowledged that institutional sales of XRP breached securities legislation, it rejected broader accusations regarding the sale of XRP on exchanges and through algorithmic trading.

The SEC has itemized its financial claims against Ripple Labs as follows:

  • $876 million in disgorgement (the return of allegedly ill-gotten gains)
  • $198 million in prejudgment interest (interest calculated on the disgorgement sum before the judgment)
  • A civil penalty of $876 million

These sums total approximately $1.95 billion, a figure that Ripple Labs is now contesting.

Ripple’s Counterarguments

Ripple’s legal team has criticized the SEC’s approach, accusing the regulatory body of administrative overreach. The lawyers argued that the SEC’s proposal reflects a stance as if it had fully prevailed in court, which was not the case. They contend that the SEC’s request for disgorgement is not supported by the gains Ripple allegedly achieved, which are further complicated by the undisclosed specifics of the company’s institutional sales revenue, tax payments, and losses.

Ripple also highlighted a significant discrepancy in the proposed penalties compared to those levied in other digital asset cases, noting that the SEC’s suggested penalty exceeds any previous digital asset-related fines by over twenty times.

The defense points to recent Supreme Court and Circuit precedent that may bar the type of disgorgement the SEC seeks. Additionally, Ripple’s filing includes redacted sections concerning its financials, arguing that the company effectively had no gains to disgorge, complicating the justification for the SEC’s demands.

Industry Implications and Ripple’s Ongoing Operations

The outcome of this case could have broad implications for the cryptocurrency industry, particularly concerning how digital assets are regulated and penalized under U.S. securities laws. As Ripple continues to navigate these legal challenges, the company remains active in the crypto market, promoting its technology as a means for efficient international money transfers.

As the legal proceedings draw toward a conclusion, both Ripple Labs and the SEC are preparing their final arguments. Ripple’s firm stance against the SEC’s hefty financial demands underscores the contentious nature of the regulatory environment surrounding cryptocurrencies.

The cryptocurrency community and other market participants will be watching closely, as the court’s decisions may set important precedents for the treatment of digital assets under U.S. law.

Featured image credit: Sarah Wynn via The Block

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.

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