The US Securities and Exchange Commission (SEC) has hit back at Ripple’s latest bid to reduce the severity of the 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 imposed by the SEC in its own case.
However, the SEC states that settlements have “limited value” in determining penalties for lawsuits, according to court documents shared by James K. Filan, an attorney and crypto legal expert.
“In asking the Court to tie its sentencing determination in this case to the Terraform settlement, Ripple fails to note that the corporate defendant there is bankrupt, ‘bankrupt for good’ and burning the keys to all its crypto assets. securities, agreeing to repay a significant amount to investors in those securities, and dismissing two of the board members responsible at the time of the violations.
The SEC considered all of these factors in agreeing to a settlement, and has repeatedly cited them as the facts relevant to the court approving the settlement under applicable law. Ripple doesn’t agree to any of this relief – in fact, Ripple doesn’t agree to any of it.”
Terraform’s settlement, which came after the stablecoin company was found liable for defrauding investors of $40 billion in the 2022 collapse of TerraUSD and Luna, includes $4.05 billion in disgorgement plus interest, in addition to a civil penalty of $420 million and an $80 million fine for the company’s disgraced founder, Do Kwon.
Ripple’s lawyers argue that the $420 million civil penalty represents approximately 1.27% of Terraform Labs’ gross revenue of $33 billion.
“As Ripple’s opposition has explained, in similar (and even 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 is seeking a civil penalty that far exceeds that range, even though there are no allegations of fraud in this case and institutional buyers have not suffered substantial losses.
But the SEC claims Ripple’s comparison doesn’t hold water.
“Ripple avoids comparing the Terraform settlement penalty to the gross profits from the infringing conduct. That ratio ($420 million/$3.587 billion) is significantly higher: 11.7%. Applying this to the $876.3 million in gross profits, the SEC here asks the Court to release the results in a much larger amount, a $102.6 million fine, than the $10 million ceiling imposed by Ripple insists. And for the reasons previously explained, such a low penalty would not meet the objectives of the civil criminal laws.”
The SEC first sued the San Francisco-based payments company in late 2020 for allegedly selling XRP as an unregistered security.
Last year, U.S. District Judge Analisa Torres ruled that Ripple’s automated, open-market sale of XRP did not constitute a security offering, contrary to what the SEC alleged.
However, the judge sided with the SEC’s contention that Ripple’s direct sales of XRP to institutional buyers were securities offerings.
In March, the SEC asked the court to order the company to pay $876,308,712 in disgorgement, $198,150,940 in prejudgment interest and a civil penalty of $876,308,712, a total of approximately $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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