Ripple Labs Calls SEC’s $2 Billion Fine Excessive, Cites Terraform Labs Case

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Ripple Labs is fighting back against the US Securities and Exchange Commission’s (SEC) $2 billion fine, calling it excessive.

The firm filed a notice of supplemental authority on Thursday, emphasizing the need for fair and consistent regulatory actions. As this legal battle moves forward, it raises broader issues regarding the consistency and fairness of penalties imposed by the SEC in the crypto industry.

Ripple Labs Wants to Pay No More Than $10 Million in Fines

At the heart of the dispute is the SEC’s demand for Ripple to pay around $2 billion in fines for its sales of XRP to institutional investors. Ripple’s legal team contrasts this with the Terraform Labs case, where the penalties were significantly less severe despite major fraud findings.

In that case, Terraform Labs and its CEO, Do Hyeong Kwon, faced penalties of about 1.27% of their $33 billion gross sales, even though their fraudulent activities erased over $40 billion in investor funds.

Ripple’s lawyers argue that the suggested $2 billion penalty far exceeds norms established in similar cases. According to their analysis, penalties typically ranged from 0.6% to 1.8% of gross revenues in comparable situations.

“Here, by contrast, the SEC seeks a civil penalty far exceeding that range, even though there are no allegations of fraud in this case and institutional buyers did not suffer substantial losses,” SEC lawyers argued.

Hence, they propose a more reasonable penalty for Ripple, capped at $10 million—far below the SEC’s current figure. Various legal experts support Ripple’s position. Bill Morgan, for instance, criticized the SEC’s approach.

“This supplemental authority draws attention to the strange animus that the SEC continues to show towards Ripple. The behavior of the SEC towards Ripple seems very ill-motivated,” Morgan said.

Also, in April 2024, Ripple firmly opposed the SEC’s demands following last year’s court ruling that acknowledged the firm’s violation of federal securities laws through institutional sales of XRP. However, the court supported Ripple by ruling that its other distributions of XRP did not qualify as investment contracts.

Ripple insists that the SEC’s penalty demands are disproportionate and also reflect regulatory overreach. This is because the findings did not demonstrate any reckless or fraudulent conduct.

By citing precedents from the Supreme Court and Circuit courts, Ripple’s lawyers emphasize that penalties should correspond more closely with the actual impact of the alleged violations and the defendant’s intent.

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