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The U.S. Securities Exchange Commission (SEC) has brought attention to violations of securities laws by Ripple Labs, urging the federal court to impose sanctions against Ripple. These sanctions include permanent injunctions, disgorgement with prejudgment interest, and civil penalties amounting to nearly $2 billion.
Criticism has arisen from Ripple executives and the cryptocurrency community regarding what they perceive as baseless assertions in the SEC's brief on remedies and other related documents. They argue that the absence of allegations related to fraud or recklessness suggests that the SEC's actions are aimed at punishing Ripple and disrupting the bullish momentum in the market. The public version of the SEC’s remedies-related brief was recently filed in court with redactions. Its core arguments hinge on violations of Section 5 of the Securities Act of 1933, particularly focusing on unregistered offerings of XRP during institutional sales. This argument stems from a previous summary judgment order issued by Judge Analisa Torres on July 13, wherein the SEC did not make accusations of fraud but instead targeted Ripple's growth through litigation.
The SEC is seeking a proposed order from Judge Torres that would require Ripple to disgorge $876,308,712, along with $198,150,940 in prejudgment interest, and a civil penalty of $876,308,712.
The SEC alleges that Ripple's sales of XRP following the complaint were predominantly to institutional investors and had adverse effects on investors due to the company's failure to disclose discounts offered to these investors. Furthermore, the SEC contends that Ripple continues to flout securities laws, misrepresent court rulings, and intentionally evade regulatory scrutiny. Ripple CEO Brad Garlinghouse has criticized the $2 billion penalty as unjustified, emphasizing the absence of fraud or recklessness in the allegations. He also pointed to what he sees as the SEC's overreach in the DEBT Box case and its departure from legal principles in the Ripple case. Ripple's Chief Legal Officer, Stuart Alderoty, expressed similar sentiments, accusing the SEC of targeting Ripple and the broader industry instead of adhering to the law faithfully. Ripple intends to present its response to the court by April 22, with the SEC filing its reply by May 6, following an extension granted by Judge Torres.
Legal experts specializing in XRP-related matters have noted that the remedies-related brief did not contain any surprises but raised concerns regarding Ripple's sales practices and negotiations. Lawyers Bill Morgan and James Farrell highlighted Judge Torres's classification of Ripple's On-Demand Liquidity (ODL) sales alongside other institutional sales, underscoring the importance of Ripple aligning its business practices with the court's directives. Fred Rispoli anticipates significant implications for Ripple from the SEC's motion but believes the court will provide ample opportunity for negotiations on penalties and fines, failing which the court will make a determination based on the viability of Ripple's newly structured sales approach.
In the midst of these legal proceedings, the price of XRP has seen a 3% increase, reaching over $0.651 in the last 24 hours, with trading volume up by 70%. These developments suggest heightened interest among traders following positive reactions from Ripple executives.