Tue, June 18, 2024 at 17:06

• 

  Kang-hoon

  • Hello, Annie.

  • Today, I want to discuss the latest development in the legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC).

  • 
• Annie

  • Oh, that sounds interesting!

  • What happened?😊

  
• 

  Kang-hoon

  • Last week, Ripple attempted to reduce the severity of its fines by pointing to the SEC's recent $4.47 billion settlement with Terraform Labs.

  • Ripple argued that the penalty brought by the SEC in their case was unreasonable in comparison.

• Annie

  • Wow, that's a huge settlement!

  • How did the SEC respond to Ripple's argument?

  
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• 

  Kang-hoon

  • The SEC argued that settlements have limited value in determining penalties for litigation.

  • They pointed out that Terraform Labs is in bankruptcy, going out of business, and agreed to return a significant amount to investors, among other factors.

• Annie

  • So, Ripple isn't agreeing to any of those terms?🤔

  
• 

  Kang-hoon

  • Exactly.

  • Ripple is agreeing to none of the relief measures that Terraform Labs did.

  • The SEC emphasized that these factors were crucial for the court to approve the settlement with Terraform.

• Annie

  • I see.

  • What were the specifics of Terraform's settlement?

  
• 

  Kang-hoon

  • Terraform's settlement included $4.05 billion in disgorgement plus interest, a civil fine of $420 million, and a penalty of $80 million for the firm's founder, Do Kwon.

  • This was after they were found liable for defrauding investors of $40 billion in the 2022 TerraUSD and Luna collapse.

• Annie

  • That's a lot of money!

  • How does Ripple's situation compare?

  
• 

  Kang-hoon

  • Ripple's lawyers argue that the $420 million civil penalty represents approximately 1.27% of Terraform Labs' $33 billion gross sales.

  • They claim that in comparable cases, the SEC has agreed to civil penalties ranging from 0.6% to 1.8% of the defendants' gross revenues.

• Annie

  • And the SEC disagrees with this comparison?

  
• 

  Kang-hoon

  • Yes, the SEC claims that Ripple's comparison doesn't hold water.

  • They argue that Ripple avoids comparing the penalty to the gross profit of the violative conduct, which would result in a much higher penalty.

• Annie

  • How much higher are we talking about?

  
• 

  Kang-hoon

  • The SEC suggests that applying the same ratio to Ripple's gross profits would result in a $102.6 million penalty, far exceeding the $10 million Ripple insists on.

• Annie

  • That's a significant difference.

  • What was the initial lawsuit about?

  
• 

  Kang-hoon

  • The SEC first sued Ripple in late 2020 for allegedly selling XRP as an unregistered security.

  • Last year, a judge ruled that Ripple's open-market sales of XRP did not constitute security offerings, but sales directly to institutional buyers did.

• Annie

  • So, what is the SEC asking for now?

  
• 

  Kang-hoon

  • In March, the SEC asked the court to order Ripple to pay $876.3 million in disgorgement, $198.15 million in prejudgment interest, and a $876.3 million civil penalty, totaling around $1.95 billion.

• Annie

  • That's a huge amount!

  • What does Ripple think is fair?

  
• 

  Kang-hoon

  • Ripple's lawyers argue that a $10 million penalty would reflect an appropriate percentage of the company's actual gross revenues from pre-complaint institutional sales.

• Annie

  • Given all this, do you think this news is good or bad for the market?

  
• 

  Kang-hoon

  • I would classify this as bad news.

  • The ongoing legal battle and the potential for a hefty penalty create uncertainty for Ripple and the broader cryptocurrency market.

  • 

  • This could negatively impact investor sentiment and market stability in the short term.

  • Upon comprehensive consideration, this news is perceived as a 😱Bearish.