SEC wants $2bn from Ripple Labs over sales of crypto tokens

The US Securities and Exchange Commission (SEC) is pursuing $2 billion in penalties from Ripple Labs following a US federal court ruling that found the cryptocurrency group had violated securities laws by improperly selling certain tokens to investors.

This development marks the latest escalation in a legal battle that commenced when the regulator filed a lawsuit against Ripple in 2020, alleging that it had sold $1.38 billion worth of its XRP token without fulfilling the required registrations mandated by US securities laws. Under the leadership of Chair Gary Gensler, the SEC has adopted an assertive stance towards the cryptocurrency sector, which he has characterized as a “Wild West.”

Gensler contends that many crypto tokens meet the criteria for securities and fall within the jurisdiction of his agency. While the SEC’s case against Ripple saw partial dismissal in July last year, with US District Judge Analisa Torres ruling that registration requirements did not apply to approximately $757 million of XRP tokens sold on digital asset exchanges to retail investors, it was determined that tokens sold to institutional investors indeed constituted securities.

In a recent court filing submitted on Monday in the Southern District Court in New York, the SEC requested $2 billion in penalties and disgorgement pertaining to these institutional sales. The SEC argues that Ripple’s conduct warrants severe penalties to deter future violations, especially considering the significant sales volume made since Torres’s ruling, which the SEC views as akin to institutional sales.

In response, Stuart Alderoty, Ripple’s chief legal officer, criticized the SEC’s actions, accusing the regulator of disseminating false and misleading statements. He affirmed that Ripple would submit its response next month.

This legal dispute underscores the SEC’s broader efforts to curb unregistered sales of digital assets, premised on the legal principle prohibiting the sale of “investment contracts” without proper registration as securities with federal regulators. The SEC has pursued similar cases against other entities, such as Genesis and BlockFi, resulting in multimillion-dollar settlements.