[co-author: Carlos Juarez]*

Earlier this month, the Southern District of New York issued its final ruling and remedies order in Securities and Exchange Commission v. Ripple Labs, Inc. Judge Analisa Torres found that the SEC failed to show that any investor was harmed by Ripple’s sales of the crypto asset XRP, rejecting the SEC’s disgorgement theory.

The court assessed a civil monetary penalty of approximately $125 million against Ripple, which the court calculated by applying a transaction-by-transaction approach, resulting in a penalty that is significantly lower than the SEC’s approximate $876 million fine.

The court issued an injunction barring Ripple from future violations of Section 5 of the Securities Act. The SEC had alleged that Ripple’s sales of XRP constituted the unlawful offer and sale of securities in violation of Section 5. The SEC also alleged that certain Ripple executives aided and abetted Ripple’s Section 5 violations. This part of the judgment relates to the institutional sales of XRP to hedge funds and other institutional buyers (as opposed to Ripple’s sales of XRP on digital asset exchanges, which were not found to be “investment contracts” and therefore also not “securities”). As a result, this prohibition applies to Ripple’s institutional sales unless such offers and sales are made pursuant to a valid exemption or are registered pursuant to the Securities Act. The retail sales on secondary markets were determined not to constitute securities transactions.

The court also rejected Ripple’s request to waive the “bad actor disqualification,” which prevents Ripple from relying on the Regulation D exemption for its securities offerings for a period of five years.

We expect the ruling to be appealed, maybe before the U.S. Court of Appeals for the Second Circuit.

*Summer Associate

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