In a notable legal development, Ripple has filed a Notice of Supplemental Authority concerning the SEC’s ongoing motion for remedies and final judgment in their case. This notice references a recent SEC consent judgment involving Terraform Labs, presenting it as a comparative case to argue against the SEC’s proposed penalties for the company.
On June 12, 2024, the SEC sought approval for a final consent judgment in the case of SEC v. Terraform Labs, a matter where Terraform and its CEO Do Hyeong Kwon were found liable for orchestrating a colossal securities fraud.
Ripple’s Argument Against SEC Penalties
According to court documents, the fraudulent activities included falsifying transaction data and manipulating the price of their token through undisclosed high-frequency trading. These actions led to investor losses exceeding $40 billion, marking it as one of the largest securities frauds in U.S. history.
The SEC’s proposed consent order for Terraform mandates disgorgement payments totaling over $3.5 billion, alongside a $420 million civil penalty. This penalty equates to approximately 1.27% of Terraform’s gross sales, a figure drawn from direct witness testimony about the investor losses incurred.
Ripple’s filing highlights this penalty percentage to underscore what it considers an inconsistency in the SEC’s approach. Ripple’s opposition brief notes that in comparable crypto-related cases, civil penalties have ranged from 0.6% to 1.8% of gross revenues. The Terraform case, despite its egregious fraud, resulted in a penalty within this range.
Conversely, the SEC’s demands in the Ripple case, where there are no fraud allegations and no substantial losses to institutional buyers, are significantly higher. The SEC is seeking a civil penalty of $876 million, which Ripple contends is disproportionately severe and far exceeds penalties in similar cases.
This disparity is at the core of Ripple’s argument that the SEC’s request is undue and disproportionate. By highlighting the Terraform judgment, Ripple wants to cover how the SEC’s penalty against it is unprecedented and isn’t justified by the circumstances of its case.
The fact that Ripple continues to use the Terraform case as a benchmark while all these legal proceedings proceed is raising fundamental questions on regulatory consistency and fairness in securities law enforcement in the industry.
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