Inside the SEC court filings that ask a court to levy $2bn fine on Ripple

The Securities and Exchange Commission is asking a federal judge in New York to fine Ripple Labs almost $2 billion, according to court filings that were made public on Tuesday.

In the documents, the SEC says the unrepentant company has continued to sell its associated XRP token to institutional investors even after a federal judge ruled the firm was violating securities laws.

The $2 billion fine will deter Ripple and others from committing securities law violations, and deprive Ripple of its ill-gotten gains, the regulator said.

The need for deterrence is clear, “given Ripple’s enormous amount of unregistered sales of XRP over the last three years,” the filing said.

New York Federal Judge Analisa Torres ruled in July that Ripple had violated securities laws with the sale of its associated token XRP to institutional investors.

Nevertheless, the company continues to sell XRP to such buyers, the SEC said in the court documents.

In fact, its profits dwarf those it made prior to the lawsuit, the regulator added, which amount to billions in institutional sales. The filing redacts exact amounts.

‘Ripple has continued its public relations campaign to deflect blame from its conduct and from its failure to be transparent about its business as the law requires.’

It said that Ripple is very much incentivised to make these sales, as it holds more XRP than anyone else — 45.77 billion units as of December 31, 2023. As of March 2024, Ripple holds about 5.5 billion units.

Moreover, the regulator highlighted Ripple’s alleged reluctance to fully own up to its actions, with merely a “perfunctory” acknowledgment hidden within its filings. The company has also “mischaracterised” the judgment, falsely presenting it as a “total victory” for itself, the regulator said.

Ripple has “continued its public relations campaign to deflect blame from its conduct and from its failure to be transparent about its business as the law requires,” the SEC said.

Court battle

The SEC first sued Ripple Labs in December 2020, alleging that it ran an unregistered securities offering.

Under US law, securities like stocks must be registered with the SEC.

Under chair Gary Gensler, who believes the vast majority of crypto tokens to be securities, the regulator has brought a slew of lawsuits against crypto businesses apart from Ripple — including exchanges Coinbase, Kraken, and Binance.

The industry, however, counters that crypto tokens don’t fall under securities law, and should have their own tailored path to registration. Gensler is therefore overstepping his authority, crypto advocates say.

In July 2023, Torres ruled that Ripple had unlawfully raised more than $728 million in unregistered securities sales when XRP was offered and sold to institutional buyers and hedge funds.

However, the “programmatic” sale of XRP — that is, sale on exchanges to retail buyers — was not violation of securities law, Torres ruled.

The crypto industry claimed this split decision as a win, and Coinbase and other exchanges relisted XRP. Screenshots of tweets appended to the SEC’s complaint show Ripple executives celebrating in the aftermath of the judgement.

The SEC later filed for leave to appeal the ruling, but Torres denied the request.

Ripple didn’t respond to DL News’ request for comment.

However, chief legal officer Stuart Alderoty said in an X post on Monday that the company would file a response with the court in April.

“Rather than faithfully apply the law, the SEC remains bent on wanting to punish and intimidate Ripple — and the industry at large,” Alderoty wrote.

Reach out to the author at joanna@dlnews.com.