SEC demands US$2 billion from Ripple Labs in landmark securities violation case

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27th March 2024 – (New York) The U.S. Securities and Exchange Commission (SEC) is intensifying its legal battle against Ripple Labs Inc., seeking penalties amounting to $2 billion following a federal court ruling that the cryptocurrency firm contravened securities regulations through unsanctioned token sales to investors.

The regulator’s bold move, part of an ongoing litigation initiated in 2020, accuses Ripple of executing unregistered sales of its XRP tokens, cumulatively worth $1.38 billion, in defiance of obligatory US securities registration processes. Under the stewardship of Gary Gensler, the SEC has pursued a formidable regulatory crusade against the crypto sector, which Gensler has likened to the unregulated “Wild West” for its perceived lack of oversight.

Gensler maintains that numerous crypto tokens should be classified as securities and thus fall within the SEC’s regulatory domain. A partial dismissal occurred in July last year when District Judge Analisa Torres decreed that approximately $757 million worth of XRP sales on cryptocurrency exchanges were exempt from registration mandates. This was due to the absence of any reasonable expectation of profits by retail investors from Ripple’s business endeavours.

However, the court determined that tokens sold to institutional investors did indeed constitute securities. In light of this, the SEC’s recent legal submission to the Southern District Court of New York on Monday called for a substantial financial sanction against Ripple for these institutional sales.

The SEC’s court documents argue for the necessity of penalties to prevent future violations and to halt Ripple’s purportedly illicit activities, citing the company’s continuation of XRP sales post-judgement, which purportedly resemble institutional-level transactions.

Ripple’s Chief Legal Officer, Stuart Alderoty, criticised the SEC’s allegations as misleading and accused the commission of misapplying the law to penalise Ripple and intimidate the broader industry. Ripple plans to submit their formal response in the following month.

The SEC has refrained from commenting on Alderoty’s critique.

The outcome of last year’s Ripple judgement marked a significant blow to the SEC’s agenda to regulate the distribution of unregistered digital assets. Central to the case is the legal principle that prohibits the sale of “investment contracts” absent registration as securities with the federal authorities.