KEY POINTS
- The regulator said Ripple failed to explain the meaningful impact of its requested 'low' penalty
- Ripple previously said there was 'no precedent' to the $2 billion penalty the SEC wanted
- A court ruled last year that XRP, Ripple's native crypto, isn't a security
The U.S. Securities and Exchange Commission's (SEC) case against cryptocurrency payment protocol giant Ripple has gone a notch higher as the Wall Street regulator submitted a final filing to reiterate that a staggering amount in penalties was necessary to punish the creator of the XRP digital asset.
In its court filing, the SEC said "a large penalty that punishes and deters is needed" in the case of Ripple to "deter future violations" of the crypto firm. The regulator also noted that Ripple "insists on a 'low' penalty" but it supposedly failed to explain how the penalty it proposes – $10 million – "would meaningfully punish its violations or deter it or others from future large-scale capital raises without required registration."
The SEC went on to explain that courts "regularly impose penalties that equal defendant's ill-gotten gains." It acknowledged that the penalty it requested from the court is a huge amount, but it was still consistent with cases with similar issues, "given the nearly $1 billion Ripple gained violating Section 5" of the Securities Act.
The regulator's latest move comes weeks after Ripple CEO Brad Garlinghouse revealed that the SEC was seeking a $2 billion penalty "in a case that involved no allegations." He said there was "no precedent" for the staggering amount.
Stuart Alderoty, Ripple's chief legal officer, also slammed the SEC's penalty demand, saying the regulatory agency has repeatedly made false and mischaracterized statements that sought to "mislead" the public.
Ripple's opposition filing to the SEC's demand for a multi-billion-dollar fine only highlights the regulatory agency's "administrative overreach" as it failed to establish "a reasonable likelihood of future violations" since the company changed its XRP sales processes based on the court's recommendations. On the day Ripple filed, Garlinghouse said that the government would be "picking up the pieces of the agency's disastrous policies long after [Chair Gary] Gensler is gone."
Feels apropos that we file our response on the same day that 2 SEC lawyers “resign” for their (mis)conduct in the Debt Box case…
— Brad Garlinghouse (@bgarlinghouse) April 23, 2024
The US will be picking up the pieces of the agency’s disastrous policies long after Gensler is gone. https://t.co/vQMHKG5kbW
The high-stakes case has dragged on since late 2020, when the SEC charged Ripple, Garlinghouse, and former Ripple CEO Christian Larsen of raising "over $1.3 billion through an unregistered, ongoing digital asset securities offering."
The parties have been going back and forth with a word war in multiple filings, but Ripple scored a significant win last year, when a New York court ruled that XRP isn't a security, noting that selling XRP tokens on exchanges did not constitute investment contracts.
Despite the ruling, the SEC pushed through with its case after it asked a judge to order Ripple to share its financial statements. U.S. Magistrate Judge Sarah Netburn ordered the crypto giant to "produce its post-complaint contracts" so the court can properly determine the amount to penalize Ripple for its violations regarding XRP sales to institutional investors.
