- The SEC has firmly opposed Ripple’s plea for reduced fines, calling Ripple’s suggested $10 million penalty a “slap on the wrist”
- The authority argued for a $2 billion penalty, claiming a smaller fine won’t hold Ripple accountable
- The SEC also criticized Ripple’s arguments, likening them to claiming unrelated licenses can justify avoiding proper registration requirements
In the ongoing legal dispute between the Securities and Exchange Commission (SEC) and Ripple, the authority has firmly opposed Ripple’s plea for significantly reduced fines. According to a recent court filing, the regulatory agency argued that Ripple’s suggested penalty of approximately $10 million would be a mere “slap on the wrist” compared to its demand for a $2 billion penalty, arguing that it fails to hold the crypto firm accountable for its actions. The SEC was also criticized for equating Ripple’s argument over future potential violations to “saying a New York restaurant need not obtain a liquor license because it obtained a fishing license in California.”
SEC: $10 Million Would Not Act as Deterrent
The legal battle began after the SEC accused Ripple of raising $1.3 billion through the sale of its XRP tokens, which it classified as an unregistered security. Despite losing its core case that XRP was a security as far as retail investors went, the company was found to have fallen foul of SEC rules with its institutional sales.
The SEC initially proposed that Ripple should pay fines close to $2 billion, emphasizing the need for penalties that reflect the firm’s gains from alleged violations, which Ripple contested, saying that it should pay no more than $10 million. In a filing this week, the SEC highlighted the rationale behind its proposed fines:
While the SEC’s requested penalty is no doubt large, it is consistent with the above cases in which penalties equal or exceed Section 5 gains. Given the nearly $1 billion Ripple gained violating Section 5, the multi-billion-dollar business it built selling XRP, the ‘low’ penalty Ripple demands would be a ‘slap on the wrist’ that neither punishes nor deters.
The SEC added that imposing Ripple’s proposed fine would encourage other crypto asset issuers to flout regulations, seeing fines as just “a cost of doing business.”
‘Fishing License’ Barb Gets Rebuke
The SEC’s proposed penalty seeks to reflect Ripple’s net gains, falling $114 million below the maximum penalty. The regulatory body insists that such a figure is necessary, given Ripple’s massive XRP holdings and cash reserves. The agency also criticized Ripple for not explaining how its suggested $10 million penalty would serve as a meaningful deterrent against future violations.
For its part, Ripple assured the Court it need not be worried about whether it could again violate the US securities laws by pointing to different licenses it has obtained from different jurisdictions, including those Ripple explains “do not treat XRP sales as sales of securities.” However, the SEC dismissed this with a memorable rejoinder:
This argument—akin to saying a New York restaurant need not obtain a liquor license because it obtained a fishing license in California—is absurd.
This was referenced on X by Ripple Chief Legal Office Stuart Alderoty, who accused the SEC of stooping to new lows in its attacks:
And just when you think the SEC can’t sink any lower, if you are a financial regulator outside the U.S. and have done the hard work of establishing comprehensive crypto licensing frameworks, know that the SEC has no respect for you and thinks you are handing out the equivalent of… pic.twitter.com/7qZQIkyrH4
— Stuart Alderoty (@s_alderoty) May 7, 2024
Ripple will be hoping that its final bill isn’t anywhere near the SEC’s demands given that it managed to avoid such a bill having won its securities case in the first place.
