Ripple to pay $125M penalty in XRP case against SEC

On Wednesday, a judge at the federal level mandated that Ripple, a cryptocurrency company, must pay a fine of just over $125 million for selling its XRP token improperly to large financial organizations.

The final amount was much lower than the $2 billion the Securities and Exchange Commission wanted, but it was also significantly higher than the $10 million maximum that Ripple requested in a court document filed in April.

The penalty is payment for 1,278 transactions that Judge Analisa Torres determined were in violation of securities laws.

Torres rejected the SEC's demand for Ripple to give back over $876 million in profits from XRP sales, and to pay $198 million in interest and a penalty of $876 million.

But she did give a court order on Wednesday, saying that Ripple must submit a registration statement if they plan to sell securities later on.

In the ruling, the Court determined that Ripple's eagerness to test the limits suggests that they may soon or already have violated regulations. The Court believes there is a good chance of future violations, which is why an injunction is necessary.

Torres clarified that the penalty is not related to any accusations of fraud or misconduct. Additionally, he stated that the SEC did not prove that Ripple not registering XRP sales led to significant losses for investors.

The dispute between Ripple and the SEC has lasted for over three and a half years. The SEC filed a lawsuit against Ripple, CEO Brad Garlinghouse, and co-founder Chris Larsen in 2020, accusing them of breaking laws that protect investors by selling close to $1.4 billion in securities without the proper licenses. The cases against the executives were dropped in October of last year.

In a decision that slightly benefits both parties, Torres declared in July 2023 that XRP is classified as a security when it is sold to large financial organizations, but not to regular individuals.

Just like last year, both Ripple and the SEC considered Wednesday's decision a win.

The SEC originally requested $2 billion, but the Court significantly reduced their demand by around 94% after realizing they had pushed too hard, according to a post by Garlinghouse on X, previously known as Twitter.

Garlinghouse expressed strong emotions in a news statement released by Ripple on Wednesday.

He claimed that the SEC had gone too far and acted unreasonably. The Court's decision to reject the SEC's final effort to impose unfair measures on us proves that the SEC, under Chair Gary Gensler, is out of touch with reality, disregards evidence, and does not follow the law.

The governing body also viewed Wednesday's decision in a favorable light.

The SEC stated that regardless of the technology or terms used, companies must comply with securities laws when offering and selling investment contracts. This has been reiterated by multiple courts.

In recent times, the SEC has taken legal action against many of the top companies in the cryptocurrency industry, alleging that some of the products they offer are not properly registered as securities. However, certain cryptocurrency companies, like Coinbase, argue that the SEC has not clearly defined what constitutes a security or provided reasons for its decisions.

Coinbase has filed a lawsuit against the SEC in an effort to get clarification, and its CEO, Brian Armstrong, has consistently criticized the agency for what he sees as questionable practices, bullying tactics, and enforcing regulations without clear guidelines.

Garlinghouse mentioned that the decision made on Wednesday provides Ripple with the certainty needed to expand their company further.

"The SEC no longer poses a threat to the entire XRP community," he stated on X.

XRP, the cryptocurrency ranked seventh in terms of market value, surged by up to 25% to reach 64 cents following the decision made on Wednesday.

Ripple has been asked to pay their fine within the next month.

Stuart Alderoty, the general counsel of Ripple, informed Bloomberg that the company has the ability to settle the debt using the funds on hand. He also expressed relief that the situation has now been resolved.

"I am optimistic that this marks the conclusion of the current administration's attempt to restrict cryptocurrency," Alderoty remarked. "It is imperative that we find a more promising path for both the crypto industry and our nation."

In a blog post on X, Alderoty described Wednesday's ruling as "a conclusive decision."

"The Court dismisses the SEC's claim that Ripple acted negligently and emphasizes that this case did not include any accusations of fraud or deliberate misconduct, and no one experienced any financial losses," Alderoty stated.

According to CoinDesk, the SEC is expected to challenge the decision made in July 2023. The agency was unsuccessful in its earlier attempt to challenge part of the ruling during the trial.