A federal judge Wednesday ordered crypto firm Ripple to pay slightly more than $125 million in penalties for improperly selling its XRP token to institutional investors.
The total was far below the nearly $2 billion the Securities and Exchange Commission sought, but also well above the $10 million ceiling Ripple argued for in an April court filing.
The fine represents remittance for 1,278 transactions that Judge Analisa Torres said violated securities law.
Torres denied the SEC’s request for Ripple to disgorge more than $876 million in profits from XRP sales, and pay $198 million in interest and an $876 million penalty.
She did, however, issue an injunction Wednesday, requiring Ripple to file a registration statement if it intends to sell securities in the future.
“The Court finds that Ripple’s willingness to push the boundaries … evinces a likelihood that it will eventually (if it has not already) cross the line,” Torres wrote in a section of her ruling that refers to Ripple’s on-demand liquidity offerings. “On balance, the Court finds that there is a reasonable probability of future violations, meriting the issuance of an injunction."
In explaining the penalty, Torres emphasized the case “does not involve allegations of fraud, misappropriation or other more culpable conduct,” and added that the SEC did not show a connection between Ripple’s failure to register the XRP sales with the agency and any substantial losses for investors.
Legal action between Ripple and the SEC has stretched more than 3½ years. The agency sued Ripple, as well as its CEO, Brad Garlinghouse, and co-founder Chris Larsen in 2020, alleging they violated investor-protection laws by selling nearly $1.4 billion in unlicensed securities. Lawsuits against the executives were dismissed last October.
In a partial win for both sides, Torres ruled in July 2023 that XRP is a security when it’s sold to institutional investors but not to the general public.
As with last year’s ruling, Ripple and the SEC each counted Wednesday’s decision as a victory.
“The SEC asked for $2B, and the Court reduced their demand by ~94% recognizing that they had overplayed their hand,” Garlinghouse wrote Wednesday on X, formerly Twitter.
Garlinghouse’s most animated comments, however, came in a press release Ripple issued Wednesday.
“The SEC's overreach and absurdity was on full display,” he said. “By rejecting the SEC's last-gasp attempt to extract unwarranted remedies from us, the Court confirms what we've always known: Chair [Gary] Gensler's SEC is detached from reality, ignores facts, and operates outside the law.”
The regulator, too, gave Wednesday’s ruling a positive spin.
“As court after court has stated, the securities laws apply when firms offer and sell investment contracts, regardless of the technology or labels that they use,” the SEC said.
The SEC, in recent years, has sued — or threatened to sue — several of the crypto sphere’s biggest companies on the grounds that various products they offer are unregistered securities. But some crypto firms — most notably, Coinbase — have asserted the agency has never publicly explained the boundaries of what it considers a security and why.
Coinbase sued the SEC to force an explanation, and its CEO, Brian Armstrong, has long accused the agency of engaging in a pattern of “sketchy behavior,” “intimidation tactics” and “regulation by enforcement.”
Garlinghouse said Wednesday’s decision gives Ripple the “clarity to continue growing our company.”
“The SEC’s headwinds against the whole of the XRP community are gone,” he wrote on X.
XRP, the seventh-largest cryptocurrency by market value, jumped by as much as 25% to 64 cents after Wednesday’s ruling.
Ripple is expected to pay its penalty within 30 days.
Stuart Alderoty, Ripple’s general counsel, told Bloomberg the company can “pay that off our balance sheet with cash,” adding, “We’re glad to have this finally behind us.”
“Hopefully this signals the end of this administration’s war on crypto,” Alderoty said. “We need a better way forward for this industry and this country.”
In a post on X, Alderoty called Wednesday’s ruling “a final judgment.”
“The Court rejects the SEC’s suggestion that Ripple acted recklessly and she reminds the SEC that this case did not involve any allegations of fraud or intentional wrongdoing, and no one suffered any financial harm,” Alderoty wrote.
The SEC is likely to appeal the July 2023 ruling, according to CoinDesk. The agency failed in its attempt to appeal part of the ruling while the case was ongoing.
