The Securities and Exchange Commission of the United States has rejected the Appeal from Ripple requesting an easing of the $2 billion penalty imposed on them.
In this article, we will look at why Ripple was given such a penalty and what the basis for its appeal to the SEC was.
Accusations against Ripple
The initial accusation was put forward by the United States Securities and Exchange Commission(SEC), in December 2022 and it accused Ripple of raising funds amounting to nearly $1.3 billion starting from the beginning of 2013, through the sale of unregistered securities called XRP.
Ripple was also accused of allegedly distributing billions of XRP in exchange for non-cash considerations such as market-making services and free labor.
The allegation was strengthened by the fact that the company had failed to register their offers and sales or XRP while not satisfying any criterion for exception from the registration.
Now let us look at what happened with the follow-up of the trial and what the verdict came out to be
The Trial verdict and Penalty appeal
The Trial was carried out subsequently and Ripple was charged with over $2 billion in the account as a penalty that included a civil penalty amounting to up to $876 million, $198 million as pre-judgment interest, and an additional $876.3 million as reparations for its ill-gotten gains.
Ripple upon hearing the verdict requested Judge Analisa Torres of the United States District Court from the Southern District of New York to revise the penalty to 10 million dollars from the current civil penalty of 876.3 million dollars which it had to pay as compensation for its unlawful gains.
Ripple’s argument for the reduction was citing the recent case of Terraform Labs whose $420 million civil penalty was only about 1.27% of its total $33 billion gross sales.
The request from Ripple was to urge the SEC to treat it with the same conditions that were set for Terraform Labs with its settlement case and reduce its penalty.
The SEC replied to the request by rejecting the appeal citing the reasons which we will cover in the session below.
What were the reasons for the rejection of the appeal by the SEC?
Now that we are clear about the background of the trial and the happenings in between let us look at the possible reasons cited by the Securities and Exchange Commission(SEC) for the rejection of the plea set forward by Ripple.
The Securities and Exchange Commission (SEC) rejected the appeal by clarifying the differences between the two cases in their letter to Judge Torres.
The letter talked about how Terraform Labs and its founder Do Kwon were already bankrupt and had agreed to reimburse the money to the investors while at the same time vowing to take action against all those who were in charge at the time of the violations.
The SEC said that no such similar conditions were agreed upon by Ripple in its case.
The SEC was also diligent enough to point out that no conditions whatsoever were agreed upon by Ripple in relation to the case.
It was thus settled that both cases are of no relevance to each other and the case of Ripple and Terraform Labs is not an “apples-to-apples comparison”
Another one of the reasons that the SEC cited for the rejection was by arguing that Ripple’s fines should be calculated based on the amount of gross profit that they have generated with the sale of unregistered securities instead of based on the amount of sales that was carried out.
The SEC further stated that even considering the proposal to lower the penalty imposed would be doing injustice to the law and regulations and would not satisfy the purpose of the civil penalty statutes.
Final Thoughts
Even though the case between the Securities and Exchange Commission (SEC) and Ripple came to a verdict that was not in favor of Ripple the legal battle between the two entities continues to this day.
However, all may not be lost for the company as it still expects the further development of the case to find a satisfactory resolution that it can agree upon.
