Ripple Labs, the company behind the XRP cryptocurrency, is contesting a hefty $2 billion penalty proposed by the Securities and Exchange Commission (SEC). They argue that the penalty is excessive, particularly when compared to a recent settlement with another blockchain company, Terraform Labs.
Ripple’s Argument: Unfair Penalty
Compared to Terraform Case
In a letter filed as part of the ongoing court battle, Ripple Labs claims the SEC’s proposed penalty is disproportionate. Their primary argument centers around the latest settlement between the SEC and Terraform Labs, creators of the Luna and TerraUSD cryptocurrencies.
SEC vs. Terraform Labs: A Different Outcome
The SEC accused Terraform Labs of misleading investors, leading to an estimated $40 billion in losses. Despite these significant allegations, the settlement resulted in Terraform Labs paying a total of $4.5 billion, which included $3.6 billion in disgorgement (returning improperly obtained funds) and $420 million in civil sanctions.
Ripple’s lawyers analyze the Terraform Labs case, focusing that the civil penalty amounted to roughly 1.27% of Terraform Labs’ gross sales ($33 billion). They further emphasize that in past SEC cases, civil sanctions have typically ranged between 0.6% and 1.8% of the defendant’s gross earnings.
Given the lack of fraud allegations in their case and minimal investor losses, Ripple argues that the SEC’s proposed $2 billion sanction is far outside the established range. They believe this inconsistency demonstrates a flawed approach by the SEC.
Ripple’s Chief Legal Officer Criticizes SEC’s Priorities
Following the Terraform Labs settlement announcement, Stephen Alderoty, Ripple’s Chief Legal Officer, took to Twitter to express his concerns. He questioned the SEC’s focus on high-profile penalties, suggesting that such an approach prioritizes media attention over establishing sound regulatory policies.
The legal battle between Ripple Labs and the SEC began in late 2020. The SEC alleges that XRP, a cryptocurrency used for international payments, is an unregistered security. Ripple strongly disputes this classification, arguing that XRP is a utility token.
At the time of the lawsuit, XRP ranked as the third-largest cryptocurrency by market capitalization, valued at $20.7 billion. While its market cap has grown to $26 billion, it has been surpassed by other cryptocurrencies and now sits at number eight.
The outcome of this ongoing legal battle holds vital weight for both Ripple and the broader cryptocurrency industry. A decreased sanction for Ripple could establish a more predictable framework for SEC penalties in future cryptocurrency-related cases.
This case also sheds light on the ongoing debate surrounding cryptocurrency regulation. The SEC’s actions and the final ruling will likely influence how regulators approach digital assets moving forward.
