In a recent development, the US Securities and Exchange Commission (SEC) has turned down Ripple Labs' proposal of a $10 million settlement in response to accusations of selling XRP to institutional investors. The regulatory body firmly insists on imposing a hefty $2 billion penalty, dismissing Ripple's initial offer as a mere token penalty.

The SEC, in a formal notice dated May 7th, underscored the significance of not accepting Ripple's proposed settlement, fearing that such an agreement would set a troubling precedent. The regulatory body expressed concerns that leniency towards Ripple could encourage other cryptocurrency issuers to flout regulatory norms, leading to a normalization of illicit activities within the industry. The commission argued that a lax penalty would make it financially rewarding for companies to disregard investor disclosure obligations, thus jeopardizing the mandated transparency in the market.

The legal dispute between Ripple Labs and the SEC traces back to December 2020 when the commission filed a legal case against the company, alleging the unauthorized sale of securities in the form of XRP, amounting to approximately $1.3 billion. While Ripple secured a favorable ruling in July 2023, indicating that specific token distributions did not constitute securities offerings, the sale of XRP to prominent industry players was deemed to breach US securities regulations.

In a recent rebuttal, the SEC raised doubts regarding Ripple's integrity, highlighting the firm's alleged efforts to downplay its accountability while boasting of its cooperation with authorities since XRP's inception in 2013. The commission dismissed Ripple's licenses acquired in other jurisdictions, comparing the argument to suggesting that a New York restaurant does not need a liquor license because it holds a fishing license in California.

In response to the SEC's unwavering stance, Stuart Alderothy, Ripple's head of legal affairs, criticized the regulatory body's tactics, accusing it of misinterpreting the law to obfuscate the legal proceedings. Alderothy expressed frustration over the SEC's lack of consideration for international regulatory frameworks, insinuating that the commission undermines the efforts of non-US financial regulators by equating their licenses to mere "fishing licenses."

Despite the SEC's rejection of Ripple's settlement offer, the company's legal troubles persist. In February, Ripple encountered a renewed class action lawsuit from investors alleging violations of securities laws. Furthermore, the court has compelled Ripple to furnish financial documentation at the SEC's request, adding layers of complexity to the ongoing legal tussle.