Ripple Labs Ordered to Pay $125 Million Penalty Over XRP Token Sales

(Bloomberg) -- Ripple Labs Inc. was ordered by a federal judge to pay a civil penalty of $125 million for improperly selling its XRP token to institutional investors

A federal judge on Wednesday ordered Ripple Labs Inc. to pay a civil penalty of $125 million for improperly selling its XRP token to institutional investors, a fraction of what U.S. regulators had sought in a long legal battle with the cryptocurrency company.

The order comes after the Securities and Exchange Commission sued Ripple Labs in 2020, claiming it broke the law when it raised money by selling the digital token without registering it as a security. The case has been closely watched because of its implications for the SEC’s regulatory power over crypto.

The agency had sought almost $2 billion in penalties, while Ripple said it shouldn’t have to pay more than $10 million. In her ruling Wednesday, U.S. District Judge Analisa Torres noted that the case didn’t include any claims of fraud.

XRP rose as much as 25% to 64 cents after the ruling. Still, the token, which is the seventh-largest cryptocurrency by market value, is little changed this year. The order comes as digital currencies have lost value amid the current bout of risk aversion in global markets.

Torres found last year that XRP was covered by securities law only when sold to institutional investors, a ruling hailed as a major victory for the industry. The SEC has several major cases against crypto exchanges and issuers, accusing them of offering unregistered securities.

Ripple Chief Executive Officer Brad Garlinghouse pointed out in a post on X that the court reduced the SEC’s demand by about 94%, “recognizing that they had overplayed their hand.” He called it a “victory for Ripple, the industry and the rule of law” and said “the SEC’s headwinds against the whole of the XRP community are gone.”

Ripple’s general counsel, Stuart Alderoty, said in a phone interview that the company respects the ruling and can “pay that off our balance sheet with cash,” adding that “we're glad to have this finally behind us.”

“Hopefully this signals the end of this administration's war on crypto,” Alderoty said. “We need a better way forward for this industry and this country.”

The SEC noted in a statement that the judge found that Ripple has shown a “willingness to push the boundaries” of her previous ruling.

“As court after court has stated, the securities laws apply when firms offer and sell investment contracts, regardless of the technology or labels that they use,” the agency said.

Disgorgement Denied

The judge issued an injunction barring Ripple from committing further violations of securities laws. But she denied the SEC’s bid for Ripple to disgorge profits from its sales. The regulator had sought more than $876 million in disgorgement and more than $198 million in interest, along with an $876 million civil penalty.

Torres wrote that the case “does not involve allegations of fraud, misappropriation or other more culpable conduct” and that the SEC hadn't shown that Ripple's failure to register the sales with the agency caused investors substantial losses.

The case is SEC v. Ripple Labs Inc., 20-cv-10832, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Dave Liedtka.

(Updates with SEC statement. An earlier version of the story corrected a description of the court injunction.)

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