The SEC argued Ripple’s proposed lower civil penalty wouldn’t be enough, and there’s no comparison to its settlement with Terraform Labs.

SEC Criticizes Ripple Labs' Request for Lower Penalty

Background
On June 13, Ripple Labs requested a significantly lower penalty in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). Ripple asked Judge Analisa Torres for a penalty of "no more than $10 million," a stark contrast to the SEC's proposed $876.3 million civil penalty. Ripple cited the SEC’s recent settlement with Terraform Labs as a precedent for a reduced penalty.

SEC's Response
In a letter to Judge Torres dated June 14, the SEC criticized Ripple’s comparison to Terraform Labs, arguing that the circumstances were not comparable. The SEC highlighted several key differences:

1. Terraform Labs Settlement: The $4.5 billion settlement with Terraform Labs included a $420 million civil penalty, but it was influenced by the firm's bankruptcy status, its agreement to return money to investors, and the firing of leaders responsible for the violations.
2. Ripple's Stance: The SEC noted that Ripple has not agreed to similar terms. Ripple's request for a lower penalty does not include any measures to return money to investors or to address leadership changes.
3. Penalty Calculation: Ripple’s argument that Terraform’s penalty was only 1.27% of its $33 billion gross sales was deemed an inappropriate comparison. The SEC clarified that Terraform’s penalty was calculated based on the gross profit of the violative conduct, which was over $3.5 billion, resulting in a nearly 12% ratio.

SEC's Proposed Penalties
The SEC proposed a total penalty for Ripple nearing $2 billion, which includes:
- $198.2 million in prejudgment interest
- $876.3 million in civil penalty
- $876.3 million in disgorgement

Ongoing Legal Battle
The legal dispute between Ripple and the SEC began in 2020 when the SEC accused Ripple of selling unregistered securities. In a July 2023 ruling, Judge Torres agreed that Ripple's sales to institutional investors constituted the sale of unregistered securities. However, Ripple has continued to contest the penalties and the scope of the violations.

Conclusion
The SEC’s stance is that a lower penalty would not meet the objectives of civil penalty statutes and would not adequately address the violations. The agency maintains that its proposed penalties are justified given the scale of Ripple's violations and the need to uphold regulatory standards in the financial markets.