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The US Securities and Exchange Commission is seeking $2bn in penalties from Ripple Labs after a US federal court found the cryptocurrency group had violated securities laws by improperly selling some tokens to investors.
The request is the latest salvo in a legal fight that began when the regulator sued Ripple in 2020, alleging it had sold $1.38bn worth of its XRP token without filing registrations required under US securities laws. Under chair Gary Gensler, the SEC has taken an aggressive approach to crypto, an industry he has defined as a “Wild West”.
Gensler has argued that many crypto tokens qualify as securities and fall under his agency’s purview. The SEC’s case against Ripple was partially dismissed last July, when US District Judge Analisa Torres found that registration requirements did not apply to about $757mn of XRP tokens sold on digital asset exchanges, because retail investors did not buy XRP with any reasonable expectation of profiting from Ripple’s business activities.
But the judge ruled that tokens sold to institutional investors were securities. The SEC on Tuesday requested $2bn in penalties and disgorgement over those sales, according to a request filed on Monday in the Southern District Court in New York.
“Additional evidence shows the egregiousness of Ripple’s misconduct, highlighting the importance of this relief for deterrence and to ensure Ripple ceases its illegal conduct,” the SEC said in a court filing, alleging the company made billions in XRP sales since Torres’s ruling, most or all of which seemed “akin to institutional sales”.
Stuart Alderoty, Ripple’s chief legal officer, said the SEC “trades in statements that are false, mischaracterized and designed to mislead. They stayed true to form here,” writing in a post on X.
“Rather than faithfully apply the law, the SEC remains bent on wanting to punish and intimidate Ripple — and the industry at large,” he added, saying that the company would file its response next month.
The SEC declined to comment on Alderoty’s statements.
Last year’s ruling in the Ripple case was a setback in the agency’s efforts to restrict unregistered sales of digital assets. The case turns on a legal stipulation that bars the sale of “investment contracts” unless they are registered as securities with federal regulators.
The SEC has filed a series of cases underpinned by this theory, accusing Genesis, BlockFi and others of selling crypto assets without registering them as securities offerings. The two companies have reached multimillion- dollar settlements with the agency.
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