It may be the final court filings in the SEC vs. Ripple case. After the reply brief filing, Judge Analisa Torres will deliberate and rule on the punishment for breaking US securities laws. In July 2023, Judge Torres ruled that Ripple breached Section 5 of the US Securities Act for failing to register XRP as a security in sales to institutional investors.
There is a significant disparity between the SEC and Ripple’s expectations.
The Penalty: $2 Billion vs. $10 Million
In the remedy-related opening brief, the SEC asked the courts to order Ripple to pay a $876,308,712 disgorgement, a prejudgment interest of $198,150,940, and a $876,308,712 civil penalty. Significantly, the SEC also requested the court to prohibit Ripple from selling XRP to institutional investors.
Ripple argued that a civil penalty should not exceed $10 million in the remedy-related opposition brief. Significantly, Ripple cited the three tiers of Section 20 (d) of the Securities Act, stating,
- Tier One: Penalties for general violations.
- Tier Two: Penalties for violations involving fraud, deceit, and manipulation, or intended and reckless disregard for regulatory laws.
- Tier Three: Penalties for violations involving culpable mental state and resulting in direct or indirect substantial losses or resulting in the significant risk of substantial losses to a person or persons.
Ripple highlighted that it should be a tier 1 case, saying that the SEC never accused Ripple of fraud, deceit, or manipulation. The opposition brief also referenced the dismissal of charges against Chris Larsen and Brad Garlinghouse vis-à-vis reckless disregard of a regulatory environment.
Judge Analisa Torres must also decide whether Ripple continued breaching US securities laws after the December 2020 complaint. The SEC justified its call for a $2 billion penalty and injunction by arguing Ripple continued to sell XRP to institutional investors. However, Ripple argued that XRP sales were to accredited investors or via ODL contracts. ODL contracts prevent profits and losses.