The US Securities and Exchange Commission (SEC) has advanced in its ongoing legal battle with Ripple. Recently, the SEC responded to Ripple’s letter concerning the TerraForm Labs Consent Judgment.
Is the SEC Gaining Ground?
In its letter, Ripple contends that it supports its opposition to the SEC’s remedies motion. Ripple noted that citing settlements is inappropriate since parties often settle for various reasons, making settlements of limited value in determining remedies in litigation.
The SEC countered by stating that Ripple failed to acknowledge that the corporate defendant in the TerraForm case is currently in bankruptcy. Ripple requested the Court to link its penalty determination in this case to the TerraForm settlement.
The SEC highlighted several factors it considered when agreeing to the TerraForm settlement, emphasizing that these factors were relevant for court approval under applicable law.
The letter from Ripple mentions that Ripple is not agreeing to any relief—in fact, it is agreeing to nothing. The SEC clarified in its remedies reply brief that settlements, where financially struggling defendants return funds to victims and cease their violative conduct voluntarily, are not comparable.
The SEC argued that such settlements are unhelpful in deciding penalties for wealthy defendants who do not recognize their securities law violations and continue to benefit from similar conduct.
Potential for a Settlement?
The SEC also addressed Ripple’s comparison of the TerraForm penalty to the defendant’s gross sales, arguing the Court should impose a similar ratio (1.27%).
However, the SEC stated that this is not a valid comparison. Ripple avoided comparing the TerraForm penalty to the gross profit from the violative conduct, which has a higher ratio (11.7%). Applying this ratio to the $876.3 million in gross profits the SEC seeks would result in a much larger penalty of $102.6 million, compared to the $10 million Ripple suggests.
The SEC concluded that a penalty as low as Ripple proposes would not meet the objectives of the civil penalty statutes.
Not a financial advice.