SEC Demands Nearly $2 Billion Penalty From Ripple Labs

The clash between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs continues, as the regulator requests almost "$2 billion in fines and penalties," Stuart Alderoty, Ripple's chief legal officer, said on X on Monday, March 25.

The SEC filed a lawsuit against Ripple Labs in December 2020, alleging that Ripple had raised over $1.3 billion through unregistered securities offerings by selling XRP. The SEC argued that XRP functioned as a security and should have been registered with the commission before being sold. Ripple has consistently maintained that XRP is a utility token used for facilitating international payments and, therefore, not a security.

In the March 25 filing, the SEC proposed a $1.95 billion penalty, which included $876.3 million in disgorgement, meaning Ripple would have to return the alleged illegal profits from XRP sales. The penalty also included $198.1 million in prejudgment interest and a $876.3 million civil penalty.

The SEC justifies this significant penalty in two ways. First, they argue Ripple defied the law by continuing to sell XRP after receiving legal warnings. Second, they stress the need to send Ripple a clear message, considering the "enormous amount of unregistered XRP sales" by Ripple over the past three years. At $1.95 billion, this is a hefty message indeed.

"Only a significant sanction from this Court and the return of the ill-gotten gains Ripple made from its violations will cause Ripple to correct its conduct."

Alderoty said the agency is trying to "punish and intimidate" the firm, and Ripple plans to file a response to the proposed judgment in April.

Rather than faithfully apply the law, the SEC remains bent on wanting to punish and intimidate Ripple - and the industry at large. 3/4
— Stuart Alderoty (@s_alderoty) March 25, 2024

Judge Torres previously ruled in July 2023 that a specific portion of XRP sales, valued at $728.9 million and sold to hedge funds and other sophisticated buyers, constituted unregistered securities offerings. However, in a major setback for the SEC, the judge also ruled that XRP sold on public cryptocurrency exchanges did not meet the legal definition of a security. The SEC's request to overturn this ruling was denied by Judge Torres.

Both Ripple and the SEC submitted a joint proposal on March 19, outlining a structured approach to sealing and redacting court documents related to the upcoming remedies phase of the case. This proposal emphasizes transparency while acknowledging the need to protect sensitive information. Both parties aim to ensure "prompt, public access to the Parties' briefs," with minimal redactions where possible.

#XRPCommunity #SECGov v. #Ripple #XRP The parties have filed a joint sealing proposal “to govern sealing issues relating to the upcoming remedies-related briefing to be filed in this case.” pic.twitter.com/gaF2DLlWDN
— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) March 19, 2024

The proposal details the following timeline for submissions and redactions:

March 22, 2024: The SEC files its opening remedies-related brief under seal for initial review by both parties.
March 25: The SEC and Ripple collaborate to determine redactions for the SEC's opening brief.
March 26: The SEC files a public, redacted version of its opening brief.
April 22: Ripple submits its opposition brief, with redactions only if necessary for confidential information.
April 23-24: If needed, discussions on redactions for Ripple's brief occur, followed by a public filing.
May 6-8: A similar process for the SEC's reply brief.
May 20: Public deadline to challenge any motions to seal documents.

Last October, the SEC filed a stipulation and order of voluntary dismissal of the claims against Brad Garlinghouse and Chris Larsen, Ripple's executives, which was approved by Judge Torres. This represents another partial win for Ripple.

Since then, the SEC and Ripple have again been engaged in a back-and-forth exchange of legal maneuvers (letters to compel and motions for extension of time) regarding the production of documents and the scope of discovery.

The SEC vs. Ripple Case Timeline

March 22 to May 20, 2024: Proposed timeframe for submissions and redactions for the SEC and Ripple.
April 2024: Ripple is expected to contest the proposal.
March 25, 2024: The SEC filed a proposal for judgment, demanding nearly $2 billion in penalties against Ripple.
October 23, 2023: The SEC voluntarily dismissed charges against the individual defendants (Garlinghouse & Larsen) with Judge Torres' approval.

October 4, 2023: Ripple's Singapore subsidiary obtained its license to operate in the country. The trading volume of XRP nearly doubled.
October 3, 2023: Judge Torres dismissed the SEC's request for an interlocutory appeal, as it does not meet the exceptional circumstances necessary.

September 8, 2023: The SEC's deadline to file its response.
September 1, 2023: Ripple filed its response to the appeal and stated that the SEC lacked any legal grounds for the appeal to be successful or relevant.
August 18, 2023: Court deadline for the SEC to file its appeal.
August 15, 2023: Judge Torres granted the SEC's request to file an interlocutory appeal. She also filed a notice of appearance for an investment banker declarant.

July 13, 2023: Judge Torres ruled that XRP is not a security in the case of programmatic sales but that the token does meet the definition of security for sales made to institutional investors. This decision has prompted various crypto exchanges, including Coinbase, Gemini, Kraken, and Bitstamp, to announce plans to list Ripple's token on their platforms, indicating growing acceptance and positive momentum for the broader crypto market.

June 13, 2023: The Hinman documents were expected to be released.
June 5, 2023: The SEC removed Hinman's biography from its website.
May 19, 2023: Reports emerged that the SEC and Ripple filed a joint letter requesting an extension to submit the Hinman speech.
May 16, 2023: Judge Torres rejected the SEC's motion to keep the Hinman speech sealed.

April 18, 2023: SEC Chair Gary Gensler testified at a congressional hearing without revealing whether ether was considered a security.
April 16, 2o23: John E. Deaton shared a 2018 video featuring Tim Draper and Gary Gensler discussing potential lawsuits and the influence on financial regulators.
March 6, 2023: Judge Torres issued an initial ruling excluding expert testimony from the summary judgment process in Ripple's legal battle with the SEC.

March 3, 2023: Ripple filed a Supreme Court letter to Judge Torres.
January 2023: Multiple organizations, including Coinbase, submitted amicus briefs in support of Ripple.
November 30, 2022: SEC and Ripple submitted final submissions to the summary judgment motions.
November 7, 2022: The LBRY blockchain lost a similar case against the SEC, resulting in a decline in XRP's value.
September 17, 2022: Both the SEC and Ripple filed motions for summary judgment.
January 24, 2022: Judge Netburn granted the SEC until February 17 to appeal the decision regarding sensitive government documents in the case.
August 31, 2021: Ripple filed a motion requesting the SEC disclose its internal crypto trading policies.
June 14, 2021: The SEC's deadline for disclosing internal crypto trading policies was extended.
April 13, 2021: SEC Commissioner Hester M. Peirce published the Token Safe Harbor Proposal 2.0.
March 22, 2021: Judge Netburn distinguished XRP from BTC and ETH in terms of currency value and utility.
March 8, 2021: The SEC requested an immediate hearing in response to Ripple's arguments.
March 3, 2021: XRP holders led by John E. Deaton contested the SEC's lawsuit, arguing that XRP is not a security.
December 21, 2020: The SEC filed a lawsuit against Ripple Labs, Garlinghouse, and Larsen.