Lawyers for Ripple Labs Inc. are urging a federal court to reconsider the potential penalty in their ongoing lawsuit with the U.S. Securities and Exchange Commission (SEC). The request comes in light of a recent settlement between the SEC and Terraform Labs, the company behind the troubled cryptocurrency TerraUSD (UST).
The SEC’s lawsuit against Ripple, filed in December 2020, alleges the blockchain firm used its XRP token as an unregistered security to raise over $1.3 billion. Ripple maintains XRP is a utility token and denies any wrongdoing.
Citing a Disparity in Penalties
In a June 13th filing with the U.S. District Court for the Southern District of New York, Ripple’s legal team argues the SEC’s proposed penalty is “unreasonable” compared to the settlement reached with Terraform Labs. The SEC approved a $4.5 billion settlement with Terraform Labs and its co-founder Do Kwon in May, following accusations of fraud surrounding the UST stablecoin.
Ripple argues the SEC has historically sought penalties ranging from 0.6% to 1.8% of a defendant’s gross revenue in similar cases. They point to the Terraform Labs settlement as evidence of this practice and claim the SEC’s proposed penalty against them – roughly $2 billion in disgorgement, prejudgment interest, and civil penalties – significantly exceeds this range.
A Lengthy Legal Battle
The Ripple vs. SEC case is one of the longest-running legal battles in the cryptocurrency industry. In a landmark decision in July 2023, Judge Analisa Torres ruled that XRP was not a security when sold on public exchanges. However, the judge left open the question of whether XRP sales to institutional investors constituted unregistered securities offerings.
The SEC subsequently dropped charges against Ripple CEO Brad Garlinghouse and executive chairman Chris Larsen, focusing its case on the sales to institutions. While a trial was initially scheduled for April 2024, it was adjourned in October 2023 with no new date set.
Uncertainties Remain
With Ripple pushing for a “reasonable” penalty and the SEC’s next move unclear, the future of the case remains uncertain. The court’s decision on a potential penalty and the eventual resumption of the trial will be closely watched by the cryptocurrency industry, with significant implications for the regulatory landscape surrounding digital assets.
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