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Ripple Labs Calls SEC’s $2 Billion Fine Excessive, Cites Terraform Labs Case

2 mins
Updated by Harsh Notariya
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In Brief

  • Ripple Labs calls the SEC’s $2 billion fine excessive, proposing a $10 million cap.
  • Ripple argues penalties should align with norms from similar cases, like Terraform Labs.
  • Legal experts criticize the SEC’s disproportionate approach and regulatory overreach.
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Ripple Labs is fighting back against the US Securities and Exchange Commission’s (SEC) $2 billion fine, calling it excessive.

The firm filed a notice of supplemental authority on Thursday, emphasizing the need for fair and consistent regulatory actions. As this legal battle moves forward, it raises broader issues regarding the consistency and fairness of penalties imposed by the SEC in the crypto industry.

Ripple Labs Wants to Pay No More Than $10 Million in Fines

At the heart of the dispute is the SEC’s demand for Ripple to pay around $2 billion in fines for its sales of XRP to institutional investors. Ripple’s legal team contrasts this with the Terraform Labs case, where the penalties were significantly less severe despite major fraud findings.

In an interview with BeInCrypto, Ricardo Mihura, a lawyer and crypto regulation specialist, talked about the Terraform Labs case.

“This is not the case of a stablecoin project, but a case of unregistered securities and, much more, a case of massive fraud to investors. The securities case has to do with the expectation of profits that both Luna and Terra (plus Anchor) promised to investors. This is not what common stablecoins, either fiat or crypto collateralized, promise to their holders,” Mihura told BeInCrypto.

In that case, Terraform Labs and its CEO, Do Hyeong Kwon, faced penalties of about 1.27% of their $33 billion gross sales, even though their fraudulent activities erased over $40 billion in investor funds.

Read more: Everything You Need To Know About Ripple vs SEC

Ripple’s lawyers argue that the suggested $2 billion penalty far exceeds norms established in similar cases. According to their analysis, penalties typically ranged from 0.6% to 1.8% of gross revenues in comparable situations.

“Here, by contrast, the SEC seeks a civil penalty far exceeding that range, even though there are no allegations of fraud in this case and institutional buyers did not suffer substantial losses,” SEC lawyers argued.

Hence, they propose a more reasonable penalty for Ripple, capped at $10 million—far below the SEC’s current figure. Various legal experts support Ripple’s position. Bill Morgan, for instance, criticized the SEC’s approach.

“This supplemental authority draws attention to the strange animus that the SEC continues to show towards Ripple. The behavior of the SEC towards Ripple seems very ill-motivated,” Morgan said.

Also, in April 2024, Ripple firmly opposed the SEC’s demands following last year’s court ruling that acknowledged the firm’s violation of federal securities laws through institutional sales of XRP. However, the court supported Ripple by ruling that its other distributions of XRP did not qualify as investment contracts.

Ripple insists that the SEC’s penalty demands are disproportionate and also reflect regulatory overreach. This is because the findings did not demonstrate any reckless or fraudulent conduct.

Read more: Ripple (XRP) Price Prediction 2024/2025/2030

By citing precedents from the Supreme Court and Circuit courts, Ripple’s lawyers emphasize that penalties should correspond more closely with the actual impact of the alleged violations and the defendant’s intent.

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Harsh Notariya
Harsh Notariya is a journalist at BeInCrypto, who writes about various topics, including decentralized physical infrastructure networks (DePIN), tokenization, crypto airdrops, decentralized finance (DeFi), meme coins, and altcoins. Before joining BeInCrypto, he was a community consultant at Totality Corp, specializing in the metaverse and non-fungible tokens (NFTs). Additionally, Harsh was a blockchain content writer and researcher at Financial Funda, where he created educational reports on...