The US Securities and Exchange Commission (SEC) has rejected a settlement bid of $10 million proposed by Ripple Labs in response to allegations of selling XRP to institutional investors. Instead, the regulatory body is adamant about a staggering $2 billion penalty, deeming Ripple’s offer a mere “slap on the wrist.”



Notably, the SEC, in a motion dated 7 th May, emphasized that accepting Ripple’s proposed punishment would set a dangerous precedent, potentially incentivizing other cryptocurrency issuers to flout regulations. The commission further argued that such leniency would normalize illicit activities in the industry, making non-compliance with investor disclosure requirements a profitable endeavor.



“Given the nearly $1 billion Ripple gained violating Section 5, the multi-billion-dollar business it built selling XRP, the “low” penalty Ripple demands would be a “slap on the wrist” that neither punishes nor deters. To the contrary, it would encourage other crypto asset issuers to violate Section 5 by making it a remarkably lucrative endeavor, and thus deprive investors the disclosures Congress mandates, as a mere “cost of doing business.” The SEC argued.



The legal battle between Ripple Labs and the SEC dates back to December 2020 when the Commission filed a lawsuit against the firm, alleging the sale of unregistered securities in the form of XRP, totaling around $1.3 billion. Although a favorable ruling was delivered for Ripple in July 2023, which determined that certain token distributions did not constitute securities offerings, the sale of XRP to major industry players was found to breach US securities laws.



In a recent appeal, the SEC also raised concerns regarding Ripple’s integrity, highlighting the company’s alleged attempts to downplay its responsibility while boasting cooperation with authorities since the inception of XRP in 2013. The commission brushed aside Ripple’s licenses obtained in other jurisdictions, likening the argument to suggesting a New York restaurant doesn’t require a liquor license because it holds a fishing license in California.



Responding to the SEC’s stance, Ripple’s head of legal, Stuart Alderothy, criticized the regulator’s tactics, accusing it of misapplying the law to confuse the court. Alderoty expressed disdain for the SEC’s disregard for international regulatory frameworks, suggesting that the commission undermines the efforts of non-US financial regulators by likening their licenses to mere “fishing licences”.



“We trust the Court will approach the remedies phase fairly,” tweeted Alderoty



That said, it is important to note that the legal woes for Ripple don’t end with the SEC’s rejection of the settlement bid. In February, the company faced an updated class action lawsuit from investors alleging violations of securities laws. Moreover, the court has mandated Ripple to furnish financial documents at the SEC’s behest, further complicating the ongoing legal saga.