n June 13, 2024, Ripple Labs submitted a significant notice in its case against the SEC, utilizing a parallel situation involving Terraform Labs to support its arguments. Through the notice penned by Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C, Ripple's legal counsel aims to sway the court's perspective on penalties.
Terraform Case Sets New Precedent
The Terraform case referenced involved the blockchain startup being found liable for conducting a large securities fraud in 2023 that led to massive investor losses. On June 12, 2024, the court approved a final consent judgment against Terraform Labs ordering payment of around $3.59 billion in disgorgement plus a $420 million civil penalty. This amounted to just over 1% of Terraform's $33 billion in net sales.
Ripple Makes Its Case
Ripple's lawyers point out key differences in the two situations. Unlike Terraform's fraudulent activities, Ripple's case does not involve any allegations of deception. Moreover, penalties sought in past comparable cases ranged from only 0.6-1.8% of revenues, much less than the SEC's proposed $2 billion fine. The notice emphasizes this "unreasonableness" and argues that the penalty lacks proportionality given no proven investor harm.
To consolidate its stance, Ripple cites how the SEC sanctioned Terraform, then contends such an "unbalanced penalty" against them would be unjust and unprecedented. It calls for a more reasonable cap of $10-20 million.
By examining the SEC's treatment of Terraform versus Ripple, the strategy illuminates an alleged inconsistency and questions the fairness of the agency's actions. It aims to negotiate down penalties to a fair civil fine based on precedents.
