A federal judge in New York has ordered Ripple Labs to pay $125 million in civil penalties and imposed an injunction to prevent future securities law violations.
On August 7, District Judge Analisa Torres from the Southern District of New York ruled that Ripple must pay $125 million in civil penalties following the discovery of 1,278 institutional sale transactions that violated securities law. This penalty is significantly less than the $1 billion in disgorgement and prejudgment interest, along with $900 million in civil penalties, initially sought by the U.S. Securities and Exchange Commission (SEC).
The judge’s decision follows a 13 July 2023 ruling which concluded that Ripple’s direct sale of XRP to institutional clients breached federal securities laws. However, Ripple’s programmatic sales of XRP to retail clients through exchanges were found not to violate any securities laws. During the case, the SEC’s attempt to appeal this portion of the ruling was unsuccessful.
In addition to the financial penalty, Judge Torres issued an injunction against Ripple, prohibiting future violations of federal securities laws. While the judge did not assert that Ripple had violated any laws since the SEC’s lawsuit was filed in December 2020, she highlighted the FinTech firm’s propensity to “push the boundaries” of legal orders, particularly regarding its “on demand liquidity” offerings. Judge Torres expressed a concern that Ripple might eventually, if not already, cross legal lines, justifying the injunction.
The injunction mandates Ripple to file a registration statement for any future securities sales. The SEC is expected to appeal the July 2023 ruling now that the sentencing has been imposed, following a previous denial of their motion for an interlocutory appeal by the same judge. Additionally, Ripple and the SEC settled charges involving CEO Brad Garlinghouse and other executives after the interlocutory appeal was denied.
In related news, the price of XRP has surged 18.9% in the past 24-hour period.
Fred Rispoli, Senior Managing Partner at Hodl Law, emphasized that this ruling is a major victory for Ripple. Despite the $125 million fine, he noted that Ripple’s gains from the recent XRP price surge offset this amount. Rispoli highlighted that current XRP sales post-complaint are not necessarily in violation of federal law and that the SEC lost a significant point with the court’s refusal to grant a categorical injunction on all institutional sales, especially concerning ODL. He also pointed out the absence of disgorgement as a significant setback for the SEC, along with the judge’s rejection of the claim that Ripple recklessly disregarded regulatory requirements.
Stuart Alderoty, Ripple’s Chief Legal Officer, remarked that the court dismissed the SEC’s allegations of recklessness and reminded that the case involved no fraud or intentional wrongdoing, nor did it result in any financial harm. He acknowledged the $125 million fine for historic sales to sophisticated third parties while criticizing the SEC’s demand for $2 billion in fines and penalties as absurd.
Jeremy Hogan, Partner at Hogan & Hogan, clarified that the injunction is unlikely to impact Ripple’s ODL sales significantly. He explained that most of Ripple’s XRP and ODL sales occur outside U.S. jurisdiction and are thus not subject to the ruling. Hogan further elaborated that Ripple can sell XRP to institutions under certain exemptions to registration, which are easier to meet when dealing with businesses. He also noted that if the SEC believes Ripple has violated the order, it would need to move for contempt and present evidence, allowing Ripple to argue its case.
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