The US Securities and Exchange Commission (SEC) has rejected Ripple’s attempt to use the Terraform Labs settlement as a precedent for a proposed $2 billion penalty. Ripple argued that the SEC’s demand for a $2 billion fine was unjust, citing the fact that Terraform Labs only received a 1.27% penalty despite engaging in fraudulent activities that resulted in significant losses for investors.
In response, the SEC criticized Ripple for making invalid comparisons and using misleading calculations to support its case. The regulatory body pointed out that Terraform Labs was in the process of winding down operations, making restitution to investors, and taking steps to rectify the violations, none of which Ripple had agreed to do. The SEC emphasized that penalties for financially stable defendants like Ripple should be based on the severity of the violations and the need for deterrence, rather than arbitrary comparisons.
The SEC also highlighted the difference in approach to calculating penalties, noting that Ripple’s proposed penalty of $10 million was significantly lower than what would be justified based on its illicit earnings. The SEC argued that applying the penalty ratio from the Terraform Labs settlement to Ripple’s earnings would result in a much higher penalty, closer to $102.6 million.
Ripple’s legal battle with the SEC dates back to 2020 when the regulator accused the company of selling XRP as an unregistered security. While a ruling determined that XRP was not a security in certain contexts, such as programmatic sales, it also classified direct sales to institutional investors as securities. Since then, Ripple and the SEC have been at odds over the appropriate penalties for these securities violations.
the SEC’s denial of Ripple’s attempt to use the Terraform Labs settlement as a precedent underscores the complex and evolving regulatory landscape for cryptocurrencies. This decision has significant implications for Ripple’s legal strategy moving forward as it continues to defend itself against allegations of securities law violations.
