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SEC Rejects Ripple's Comparison to Terraform Labs Settlement

Highlights:

  • The SEC rejected Ripple’s comparison to Terraform Labs, citing significant case differences.
  • Ripple’s penalty comparison based on Terraform’s ratio ignored gross profits, leading to a proposed $102.6 million penalty.
  • The SEC emphasized that Terraform Labs’ bankruptcy and restitution measures differentiate it from Ripple’s case.

The U.S. Securities and Exchange Commission (SEC) has strongly opposed Ripple’s attempt to use the Terraform Labs settlement as a benchmark to argue against a proposed $2 billion fine. Ripple argued that the SEC’s fine was excessive, especially compared to the 1.27% penalty imposed on Terraform Labs despite its significant financial misconduct.

SEC Criticizes Ripple’s Comparisons

The SEC contended that comparing Ripple’s case to Terraform Labs was inappropriate due to fundamental differences. Terraform Labs, unlike Ripple, is bankrupt and has agreed to severe penalties. The SEC noted that Terraform Labs is winding down operations, destroying keys to its crypto asset securities, and removing board members involved in violations. In contrast, Ripple has not agreed to such measures.

The SEC highlighted that settlements involving bankrupt entities like Terraform Labs, which agree to return funds to victims and cease their violative conduct, are not comparable to a wealthy defendant like Ripple. The SEC emphasized that Ripple has failed to acknowledge its violation of securities laws.

Inappropriate Penalty Ratio Calculation

Ripple’s argument also focused on the penalty ratio, suggesting that applying Terraform’s penalty ratio to Ripple’s gross profits would result in a much lower fine than $2 billion. Ripple proposed a ceiling of $10 million, claiming it was reasonable based on Terraform Labs’ penalty.

The SEC refuted this by pointing out that Ripple’s calculations were flawed. The regulator argued that Ripple avoided comparing the Terraform settlement’s penalty to the gross profit of the violative conduct. When applying Terraform’s penalty ratio of 11.7% to Ripple’s $876.3 million in gross profits, the appropriate penalty would be $102.6 million, significantly higher than Ripple’s proposed $10 million.

SEC’s Stand on Ripple’s Penalty

The SEC has maintained that the appropriate penalty for Ripple should reflect the severity of its violations. The financial watchdog insists that the $2 billion fine is justified, given Ripple’s significant gross profits from its alleged unregistered securities sales. The SEC also noted that Ripple’s actions have not ceased, unlike Terraform Labs, which agreed to cease the actions that led to the violations.

The legal battle between Ripple and the SEC has been ongoing since 2020. The SEC accused Ripple of using XRP as an unregistered security to raise funds. Judge Analisa Torres ruled that XRP is not a security in exchange programmatic sales but determined that direct XRP sales to institutional investors qualify as securities.

Ripple’s Response and Ongoing Developments

Ripple has continued to contest the SEC’s claims, arguing that no users suffered losses in their case, unlike the Terraform Labs incident, which led to significant investor losses. Ripple has also been actively expanding its business, with recent developments including a stablecoin update and a partnership with Archax.

The final decision on the appropriate penalty for Ripple is still pending in court. The outcome of this case could have significant implications for other SEC-related cases that may require settlements. As both parties present their arguments, the court’s ruling will be pivotal in determining the future regulatory landscape for the cryptocurrency industry.

Terraform Labs Shuts Down After $4.7 Billion SEC Settlement

Recently, Terraform Labs, a blockchain company founded by Do Kwon, closed down after agreeing to pay a $4.7 billion settlement to the U.S. Securities and Exchange Commission (SEC). On June 12, CEO Chris Amani announced the closure, marking a significant development for the firm.

The settlement addresses charges related to misleading investors and selling unregistered securities. Consequently, this marks the end of Terraform Labs’ operations. The SEC’s case against the company highlights ongoing regulatory scrutiny in the blockchain industry.

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