June 14, 2024 at 14:31 GMTModified date: June 14, 2024 at 14:31 GMT
June 14, 2024 at 14:31 GMT

Ripple references Terraform case to challenge SEC’s $2B penalty

Ripple’s legal submission argued that the penalties sought by the SEC in its case are disproportionately high when compared to industry norms and the nature of the allegations against Ripple.

Ripple references Terraform case to challenge SEC’s $2B penalty

Ripple Labs Inc. has taken a bold step in its ongoing legal battle with the US Securities and Exchange Commission (SEC) to potentially reduce the financial penalties it faces.

The fintech company’s latest move involves invoking a recent SEC case against Terraform Labs to argue for more lenient treatment in its own proceedings.

Ripple’s legal team, led by Michael K. Kellogg of Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., submitted a notice of supplemental authority to the Southern District of New York on 13 June, 2024.

The filing strategically draws parallels with a recent SEC ruling involving Terraform Labs, where significant penalties were imposed for securities violations.

In the Terraform case, the SEC secured a final consent judgement resulting in approximately $3.59 billion in disgorgement and a $420 million civil penalty. These penalties amounted to about 1.27% of Terraform’s $33 billion in gross sales.

Ripple’s legal submission argued that the penalties sought by the SEC in its case are disproportionately high when compared to industry norms and the nature of the allegations against Ripple. Kellogg’s filing highlighted key differences between Ripple’s situation and that of Terraform Labs.

While Terraform was involved in what the SEC described as one of the largest securities frauds in US history, Ripple’s case primarily concerns allegations of conducting unregistered securities sales.

Ripple’s legal team contended that this distinction warrants a significantly lower penalty than the SEC is currently seeking, reportedly up to $2 billion.

The document filed by Ripple’s counsel criticises the SEC’s approach, arguing that the proposed penalties far exceed those imposed in similar cases where no fraud was alleged.

According to Ripple, penalties in comparable cases have typically ranged from 0.6% to 1.8% of the defendant’s gross revenues, significantly less than what the SEC aims to levy against Ripple.

In response to the SEC’s demands, Ripple proposed a far more modest penalty of $10 million, a figure it believes aligns more closely with precedents set in similar regulatory cases.

The company’s legal strategy not only challenges the fairness of the SEC’s actions but also seeks to establish a basis for negotiating a more reasonable financial settlement.

Drawing inspiration from SEC

Ripple’s recent legal manoeuvre mirrored tactics previously employed by the SEC itself. 

Earlier this year, the SEC cited its Terraform Labs case in correspondence with Judge Katherine Failla regarding a separate legal matter involving Coinbase. 

This strategy underscored Ripple’s attempt to leverage legal precedents to its advantage in the ongoing litigation.

In its own defence, Ripple has drawn parallels between the SEC’s handling of various cases, including its unsuccessful attempt to appeal a ruling related to Ripple’s programmatic sales of $XRP. 

This strategic approach aims to highlight inconsistencies in the SEC’s regulatory enforcement and seeks to influence the outcome of Ripple’s current legal predicament.

No stop to innovation

Despite the regulatory challenges it faces, Ripple continues to forge ahead with its technological innovations and product developments. 

Recently, the company announced its intention to launch RLUSD (Real USD), a stablecoin pegged 1:1 to the US dollar.

Unveiled during the XRP Ledger Apex summit in Amsterdam, RLUSD represents Ripple’s latest venture into the stablecoin market. 

Designed to provide transparency and stability on both the XRP Ledger and Ethereum blockchain, RLUSD aims to cater to the growing demand for reliable digital assets in global financial transactions.

Ripple CEO Brad Garlinghouse emphasised RLUSD’s significance, dubbing it the “Real USD” for the digital age. 

The stablecoin’s backing by US dollars, US government bonds, and cash equivalents positions it as a secure and viable option for users seeking stability in the volatile cryptocurrency landscape.