Quick Take:

• Ripple challenges SEC’s proposed $2 billion fine, calling it unreasonable.
• The company cites Terraform Labs’ settlement as a basis for a lower penalty.
• Ripple argues its penalty should align with past cases and be closer to $10 million.

In the latest development of its prolonged legal conflict with the U.S. Securities and Exchange Commission (SEC), Ripple Labs is pushing back against the hefty financial penalties proposed by the agency. In a “notice of supplemental authority” released on Thursday, Ripple compared its situation to that of Terraform Labs, arguing that the SEC’s $2 billion fine demand is excessively high and inconsistent with penalties in similar cases.

Ripple has been embroiled in a legal dispute with the SEC for several years, with the agency accusing the firm of raising $1.3 billion through the sale of XRP, which it claims is an unregistered security. The legal battle has seen various twists and turns, with Ripple now leveraging a recent settlement involving Terraform Labs to argue for a significantly lower penalty.

On Wednesday, Terraform Labs agreed to pay $4.47 billion in fines, a settlement that was approved by a judge the following day. Ripple’s legal team quickly seized upon this development, contending that the SEC’s proposed penalties against Ripple are disproportionate compared to those imposed on Terraform. Ripple argues that its fine should be around $10 million, a stark contrast to the SEC’s $2 billion figure.

“The civil penalty sought by the SEC in Terraform demonstrates the unreasonableness of the civil penalty sought by the SEC in this case,” Ripple’s lawyers asserted in their filing. They pointed out that in other cases involving more egregious conduct, the SEC has agreed to civil penalties ranging from 0.6% to 1.8% of the defendant’s gross revenues. By these standards, the lawyers argued, Terraform’s settlement aligns with previous patterns, whereas the SEC’s demand from Ripple far exceeds this range.

Ripple also highlighted a jury’s April finding that Terraform Labs and its co-founder, Do Kwon, had engaged in civil fraud. Despite this, Ripple’s lawyers noted that the SEC seeks a civil penalty far greater in Ripple’s case, even though there are no fraud allegations and institutional buyers did not suffer substantial losses. This, Ripple argues, underscores the disproportionate nature of the SEC’s penalty request.

“The SEC’s position is unprecedented and unwarranted given the circumstances,” Ripple’s legal team stated. They urged the court to reject the SEC’s disproportionate demand and consider a penalty that aligns with historical precedents, suggesting that $10 million would be an appropriate amount.

The SEC has yet to respond to Ripple’s latest filing. The ongoing case, which has already set significant legal precedents, continues to capture the attention of the cryptocurrency community and regulatory bodies alike.

Last year, Judge Analisa Torres of New York issued a mixed ruling on the case. She determined that some of Ripple’s sales of XRP, specifically those conducted through a blind bid process known as programmatic sales, did not violate securities laws. However, she also ruled that other direct sales of the token to institutional investors were indeed securities.

Ripple’s latest move to cite Terraform Labs’ case highlights the strategic legal maneuvering typical in high-stakes regulatory disputes. By drawing comparisons to Terraform’s settlement, Ripple aims to bolster its argument for a more lenient penalty, emphasizing the need for consistency and fairness in regulatory enforcement.

Terraform Labs’ settlement involved significant fines but also stemmed from more severe accusations, including civil fraud. In contrast, Ripple’s case lacks such allegations, which the company believes should be a critical factor in determining the penalty. Ripple’s lawyers stressed that their client’s situation is less severe and should therefore warrant a correspondingly lower penalty.

As the case progresses, the implications extend beyond Ripple itself. The outcome could influence how the SEC approaches other cryptocurrency firms and shape the broader regulatory landscape for digital assets. Ripple’s argument for a lower penalty based on past cases and proportionality resonates with many in the industry who are calling for clearer and more consistent regulatory guidelines.

Ripple’s stance also underscores the broader debate over the classification of cryptocurrencies and the appropriate regulatory frameworks. The distinction between securities and other types of assets remains a contentious issue, with significant implications for the industry’s future.

In summary, Ripple’s challenge to the SEC’s proposed $2 billion fine, based on comparisons with Terraform Labs’ settlement, is a critical development in the ongoing legal battle. The company’s insistence on a more reasonable penalty reflects its broader strategy to navigate complex regulatory waters and advocate for fair treatment within the evolving legal framework for cryptocurrencies. As the case unfolds, it will undoubtedly continue to influence the discourse around regulatory practices and the future of digital asset governance.