In a recent dispute over penalties, the United States Securities and Exchange Commission (SEC) has come out strongly against Ripple Labs’ call for a relatively minor financial slap on the wrist. Ripple has been asking for a civil penalty limit of $10 million, a drastically reduced figure compared to the original proposed penalty of $876.3 million by the SEC.
Ripple tried to justify these demands through the reference of an earlier SEC settlement with Terraform Labs. However, the SEC blasted back arguing that this case was not a valid comparison, as the circumstances of the Terraform settlement were unique. Among other things, this was due to Terraform agreeing to reimburse investors and making significant changes to leadership — something Ripple has not offered to do.
The SEC took further issue with the basis of Ripple’s argument. Ripple compared its proposed penalty to Terraform’s based on gross sales, while the SEC insisted that the comparison should be based on the “gross profit of the violative conduct”. The SEC calculated the penalty against Terraform as being nearly 12% of its over $3.5 billion profit from conduct violating its regulations.
In the SEC’s correspondence with Torres, it was stated that if the same 12% ratio were applied to Ripple’s questionable profits of $876.3 million, Ripple should be looking at a civil penalty of $102.6 million. According to the SEC, this would be the bare minimum to meet the objectives of civil penalty laws.
The SEC’s total suggested penalties for Ripple approach $2 billion, inclusive of a $876.3 million civil penalty and the same amount in disgorgements, as well as $198.2 million in prejudgment interest. Ripple and the SEC have been embroiled in a legal battle since 2020 when the latter argued that Ripple was marketing unregistered securities. Despite the conflict, the only agreement is that these sales did occur, but only to institutional investors.