SEC Appeals Ripple Judgment After $125 Million Penalty Ruling
The SEC appealed the recent judgment of the US District Court for the Southern District of New York against cryptocurrency firm Ripple Labs, Inc., which ordered the company to pay a civil penalty of $125 million for the sale of unregistered securities. (See previous coverage.)
In its 2020 Complaint, the SEC alleged that Ripple engaged in three types of unregistered XRP transactions: (i) "Institutional Sales" under written contracts, amounting to $728 million; (ii) "Programmatic Sales" on digital asset exchanges, totaling $757 million; and (iii) "Other Distributions" under contracts that generated $609 million in consideration. The SEC sought a final judgment against Ripple, including (i) a permanent injunction prohibiting future violations of Section 5 ("Prohibitions relating to interstate commerce and the mails") of the Securities Act of 1933; (ii) an order for Ripple to disgorge $876 million and pay $198 million in prejudgment interest; and (iii) an $876 million civil penalty. Ripple argued that the SEC's requests were excessive, asserting that any civil penalty should not exceed $10 million and that an injunction was unwarranted.
In its ruling, the US District Court for the Southern District of New York issued a $125 million judgment, rejecting the SEC's claims that Ripple had recklessly disregarded securities laws or failed to take responsibility. The District Court noted Ripple's efforts to comply with legal advice and acknowledged the company's recognition of prior rulings concerning its sales practices. The District Court dismissed claims for disgorgement, affirming that investors received the anticipated returns.
Regarding the SEC's appeal to the US Court of Appeals for the Second Circuit, an SEC spokesperson stated: "We believe that the district court decision in the Ripple matter conflicts with decades of Supreme Court precedent and securities laws and look forward to making our case to the Second Circuit."
In a post on X, Ripple CEO Brad Garlinghouse argued that the SEC "still [has not] gotten the message: they lost on everything that matters." He said: "Ripple, the crypto industry, and the rule of law have already prevailed. While we'll fight in court for as long as we need, let's be clear: XRP's status as a non-security is the law of the land today - and that does not change even in the face of this misguided—and infuriating—appeal."
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