Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 1 of 16

USDC SDNY
UNITED STATES DISTRICT COURT DOCUMENT
SOUTHERN DISTRICT OF NEW YORK ELECTRONICALLY FILED
SECURITIES AND EXCHANGE COMMISSION, DOC #: _________________
DATE FILED: 08/07/2024

Plaintiff,
-against- 20 Civ. 10832 (AT)
ORDER
RIPPLE LABS, INC.,

Defendant.
ANALISA TORRES, District Judge:

Plaintiff, the Securities and Exchange Commission (the “SEC”), brings this action against

Defendant, Ripple Labs, Inc. (“Ripple”), alleging that Ripple engaged in the unlawful offer and

sale of securities in violation of Section 5 of the Securities Act of 1933 (the “Securities Act”), 15

U.S.C. § 77e(a), (c). Am. Compl. ¶¶ 9, 430–35, ECF No. 46. On July 13, 2023, the Court

granted in part and denied in part the parties’ cross-motions for summary judgment (the

“Order”). Order, ECF No. 874; see SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308 (S.D.N.Y.

2023), motion to certify appeal denied, 697 F. Supp. 3d 126 (S.D.N.Y. 2023).

Now before the Court is the SEC’s motion for remedies and the entry of final judgment. 1

SEC Mot., ECF No. 948; SEC Mem., ECF No. 949; Proposed Judgment, ECF No. 950. For the

reasons stated below, the SEC’s motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND 2

This case involves Defendants’ offer and sale of XRP, the native digital token of the XRP

Ledger, a cryptographically secured ledger or “blockchain.” Order at 2. On December 22, 2020,

1
Ripple has also moved to seal certain documents filed in connection with the SEC’s motion. ECF No. 963; see
ECF Nos. 964–68. The Court will address the sealing requests by separate order.
2
The Court presumes familiarity with the facts and procedural history of this matter as detailed in prior orders, see
Order at 2–9, and, therefore, only summarizes those facts necessary for its decision here.
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 2 of 16

the SEC commenced this action. See Complaint, ECF No. 1. An amended complaint was filed

on February 18, 2021. ECF No. 46. As relevant here, the SEC alleged that Ripple engaged in

three categories of unregistered XRP offers and sales:

(1) Institutional Sales 3 under written contracts for which it received $728 million;
(2) Programmatic Sales on digital asset exchanges for which it received $757
million; and
(3) Other Distributions under written contracts for which it recorded $609 million
in “consideration other than cash.”

Id. at 15–16; see id. at 4–5. The SEC also alleged that Bradley Garlinghouse and Christian A.

Larsen, two of Ripple’s senior leaders, engaged in unregistered individual XRP sales from which

they received at least $450 million and $150 million, respectively. Id. at 5, 16.

Under Section 5 of the Securities Act, it is “unlawful for any person, directly or

indirectly, . . . to offer to sell, offer to buy or purchase[,] or sell” a “security” unless a registration

statement is in effect or has been filed with the SEC as to the offer and sale of such security to

the public. 15 U.S.C. §§ 77e(a), (c), (e). To prove a violation of Section 5, the SEC must show:

(1) that no registration statement was filed or in effect as to the transaction, and (2) that the

defendant directly or indirectly offered to sell or sold the securities (3) through interstate

commerce. See SEC v. Cavanagh, 445 F.3d 105, 111 n.13 (2d Cir. 2006).

At summary judgment, the Court—applying the Supreme Court’s test set forth in SEC v.

W.J. Howey Co., 328 U.S. 293 (1946)—concluded that Ripple’s Institutional Sales constituted

offers or sales of investment contracts, but that Ripple’s Programmatic Sales and Other

Distributions did not. Order at 30. The Court also held that Larsen’s and Garlinghouse’s

individual sales were not offers or sales of investment contracts for “substantially the same

reasons” stated in the Court’s analysis of Ripple’s Programmatic Sales. Id. at 27–28.

3
Capitalized terms not otherwise defined herein have the meanings set forth in the Order.

2
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 3 of 16

The SEC subsequently moved to certify for interlocutory appeal the Court’s holdings on

Programmatic Sales and Other Distributions. ECF No. 892. On October 3, 2023, the Court

denied the SEC’s motion and set for trial the SEC’s claim that Larsen and Garlinghouse aided

and abetted Ripple’s violations of Section 5 with regard to the Institutional Sales. ECF No. 917.

By stipulation dated October 19, 2023, the SEC dismissed its pending claims against Larsen and

Garlinghouse, obviating the need for a trial. ECF No. 921.

Now before the Court is the SEC’s motion for remedies and entry of judgment on

Ripple’s violations of Section 5 as to the Institutional Sales. The SEC seeks a final judgment

against Ripple that (1) permanently enjoins it from future violations of Section 5 and from

conducting an unregistered offering of XRP in Institutional Sales; (2) orders Ripple to pay

$876,308,712 in disgorgement and $198,150,940 in prejudgment interest; and (3) orders Ripple

to pay an $876,308,712 civil penalty. SEC Mem. at 1. Ripple contends that an injunction and

disgorgement are unwarranted, and that any civil penalty should not exceed $10 million. See

Ripple Opp., ECF No. 955.

DISCUSSION

“Once [a] district court has found federal securities law violations, it has broad equitable

power to fashion appropriate remedies[.]” SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474

(2d Cir. 1996). Such remedies may include injunctive relief, disgorgement of ill-gotten profits,

and civil penalties. SEC v. Frohling, 851 F.3d 132, 138 (2d Cir. 2016). The SEC asks for all

three.

3
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 4 of 16

I. Injunctive Relief

A. Legal Standard

“Injunctive relief is expressly authorized by Congress to proscribe future violations of

federal securities laws.” SEC v. Cavanagh, 155 F.3d 129, 135 (2d Cir. 1998) (citing 15 U.S.C.

§ 78u(d)). “Such relief is warranted if there is a reasonable likelihood that [a] defendant[ ] will

commit future violations of the securities laws.” SEC v. Am. Growth Funding II, LLC, No. 16

Civ. 828, 2019 WL 4623504, at *1 (S.D.N.Y. Sept. 24, 2019) (citing SEC v. Commonwealth

Chem. Sec., Inc., 574 F.2d 90, 99–100 (2d Cir. 1978)). To award injunctive relief, “a court must

look beyond the mere facts of past violations and demonstrate a realistic likelihood of

recurrence.” In re Rsrv. Fund Sec. & Derivative Litig., No. 09 Civ. 4346, 2013 WL 5432334, at

*22 (S.D.N.Y. Sept. 30, 2013) (quotation marks and citations omitted). To determine whether

injunctive relief is appropriate, courts are directed to consider:

[1] the fact that the defendant has been found liable for illegal conduct; [2] the
degree of scienter involved; [3] whether the infraction is an “isolated occurrence;”
[4] whether defendant continues to maintain that his past conduct was blameless;
and [5] whether, because of his professional occupation, the defendant might be in
a position where future violations could be anticipated.

Cavanagh, 155 F.3d at 135 (quoting Commonwealth Chem. Sec., Inc., 574 F.2d at 100).

B. Application

The SEC asks the Court to enjoin Ripple from “violating Section 5 and from conducting

an unregistered offering of Institutional Sales of XRP.” SEC Mem. at 4. Ripple argues that the

SEC has failed to show that an injunction is warranted. See Ripple Opp. at 2–16. The Court

agrees with the SEC.

As to the first and third Cavanagh factors, Ripple has been found liable for violating

Section 5 in its sales of XRP to the Institutional Buyers. Order at 22. These violations were not

isolated: they spanned eight years and involved forty-one counterparties. Id. at 4; Long Decl.

4
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 5 of 16

¶ 4, ECF No. 957-1; see SEC v. Fowler, 440 F. Supp. 3d 284, 301 (S.D.N.Y. 2020) (offenses not

isolated when they involved “13 clients over the course of three years”).

On the second Cavanagh factor, the degree of scienter, the SEC contends that Ripple’s

violations “involved, at least, a reckless disregard for the law.” SEC Mem. at 4. The SEC notes

that in February 2012, before the XRP Ledger was publicly launched, Ripple received a

memorandum from the Perkins Coie LLP law firm advising it that “if sold to investors, XRP

tokens are likely to be securities.” Order at 7 (cleaned up). A subsequent Perkins Coie

memorandum counseled that “although we believe that a compelling argument can be made that

XRP tokens do not constitute ‘securities’ under federal securities laws, given the lack of

applicable case law, we believe that there is some risk, albeit small, that the SEC disagrees with

our analysis.” Id. at 8 (cleaned up). The law firm also advised Ripple that the more it promoted

XRP as an investment opportunity, “the more likely it is that the SEC will take action.” Id.

Larsen testified that after receiving the second Perkins Coie memorandum, Ripple took steps to

ensure compliance with its advice. Id. at 32.

At summary judgment, the Court found that a genuine issue of material fact remained as

to whether Larsen and Garlinghouse had recklessly disregarded the securities laws. Id. at 31–33.

Because the SEC has adduced no new facts to support a finding of recklessness at this stage, the

Court finds that Ripple’s scienter, too, is inconclusive. See SEC v. Haligiannis, 470 F. Supp. 2d

373, 381–82 (S.D.N.Y. 2007) (collecting cases imputing the scienter of a corporate agent to the

corporation). Although the SEC points to Ripple’s profit motive to avoid registration and

disclosure, SEC Mem. at 5, this fact alone does not support an inference that Ripple recklessly

disregarded regulatory requirements in making its business decisions. Cf. Prickett v. N.Y. Life

5
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 6 of 16

Ins. Co., 896 F. Supp. 2d 236, 247 (S.D.N.Y. 2012) (noting that, in the common-law fraud

context, “the profit motive common to all businesses is insufficient to establish scienter”).

On the fourth Cavanagh factor, the defendant’s willingness (or unwillingness) to accept

blame, the SEC points to a number of post-Order statements made by Ripple and its corporate

agents to argue that “Ripple has not accepted responsibility for its violations.” SEC Mem. at 6.

Ripple, in turn, notes that it has acknowledged the Court’s ruling on the Institutional Sales in

each of its quarterly market reports and contends that the other cited statements are taken out of

context. Ripple Opp. at 14–16. Having considered the post-Order statements, the Court does not

find that Ripple has “continued a campaign of def[l]ecting blame.” SEC Mem. at 6. Although

Ripple and its employees have largely emphasized the favorable aspects of the Order in their

public statements, Ripple has also repeatedly acknowledged the Court’s holding as to its

Institutional Sales. See Long Decl. ¶ 5. Ripple’s post-Order statements do not rise to the level of

blame-shifting required to justify injunctive relief based on this factor alone. E.g., SEC v.

Mattessich, No. 18 Civ. 5884, 2022 WL 16948236, at *6–7 (S.D.N.Y. Nov. 15, 2022) (citing

defendant’s “continued protestations that his conduct was blameless”).

Ripple’s actions, however, are another story. Relevant to the fourth and fifth Cavanagh

factors, the SEC asserts that Ripple “continues to sell [XRP], unregistered,” to Institutional

Buyers—specifically, in “continu[ing] to execute contracts for unregistered sales of XRP in

direct [on-demand liquidity (‘ODL’)] transactions.” 4 SEC Mem. at 8. Ripple admits that after

the Order was issued, it has continued to sell XRP in ODL transactions. Ripple Opp. at 6–7. It

also concedes that the Order defined Institutional Sales as including sales to “ODL customers.”

4
“ODL facilitates cross-border transactions by allowing customers to exchange fiat currency (for example, U.S.
dollars) for XRP and then the XRP for another fiat currency (for example, Mexican pesos).” Order at 3.

6
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 7 of 16

Id. at 9 (citing Order at 4). However, Ripple argues that its “ongoing ODL Sales do not have the

key characteristics that this Court relied on in finding that Ripple’s Institutional Sales were sales

of investment contracts.” Id. Not so. Although the Court noted that “some Institutional Buyers

agreed to lockup provisions or resale restrictions”—features “inconsistent with the notion that

XRP was used as a currency or for some other consumptive use”—the Court did not hold that a

contract lacking these features is ipso facto lawful under Section 5. Order at 21–22 (emphasis

added). Ripple attempts to relitigate the Court’s inclusion of ODL transactions in Institutional

Sales, see ECF No. 825 at 6–7, while at the same time suggesting that “[r]emedies briefing is not

the time or place” to analyze the ODL transactions in detail, Ripple Opp. at 9. The company

cannot have it both ways.

To be clear, the Court does not today hold that Ripple’s post-Complaint sales have

violated Section 5. 5 Rather, the Court finds that Ripple’s willingness to push the boundaries of

the Order evinces a likelihood that it will eventually (if it has not already) cross the line. On

balance, the Court finds that there is a reasonable probability of future violations, meriting the

issuance of an injunction.

Turning to the scope of the injunction, Ripple first contends that Part I of the SEC’s

Proposed Judgment—which “permanently restrain[s] and enjoin[s] [Ripple] from violating

Section 5 of the Securities Act,” Proposed Judgment at 2—is an unhelpfully vague “directive not

to violate” the law. Ripple Opp. at 16. But, the Second Circuit has found that an injunction that

“merely parrot[s]” statutory language is proper. SEC v. Manor Nursing Ctrs., Inc., 458 F.2d

5
Ripple notes that “most of [its] ODL business is outside the United States,” where its contracts are governed by
foreign law, and that Ripple now ensures that “all new ODL customers have at least $5 million in total assets, so that
they are ‘accredited investor[s]’ under 17 C.F.R. § 230.501(a)(3).” Ripple Opp. at 7–8 (citation omitted). Whatever
merit these defenses may have, they are not determinative of the question before the Court: whether the SEC has
shown a risk of future violations.

7
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 8 of 16

1082, 1103 (2d Cir. 1972). Courts in this Circuit routinely impose such injunctions in securities

cases. See SEC Reply at 7 (collecting cases); e.g., SEC v. Fowler, 17 Civ. 139, ECF No. 205

(S.D.N.Y. 2020); SEC v. Bronson, 12 Civ. 6421, ECF No. 186 (S.D.N.Y. 2017).

Ripple also argues that Part II of the Proposed Judgment, which enjoins it from

“conducting an unregistered offering of Institutional Sales,” Proposed Judgment at 3, should be

altered to clarify that “it does not bar ODL sales, does not bar extraterritorial conduct, and does

not bar sales that qualify for exemptions from registration,” Ripple Opp. at 17. The Court agrees

that the SEC’s proposed language is too categorical and, in any case, duplicative of behavior

proscribed by Part I of the Proposed Judgment. The Court will, therefore, omit the SEC’s

proposed Part II.

Finally, Ripple asks the Court to “waive the ‘bad actor disqualification’ provisions of

§ 230.506(d)(1), which prevent an enjoined issuer from using the SEC’s Regulation D exemption

for certain private securities offerings.” Ripple Opp. at 17. Although the Court has the

discretion to do so, see 17 C.F.R. § 230.506(d)(2)(iii), Ripple cites no authority that persuades

the Court that judicial waiver is necessary or appropriate here.

Accordingly, the SEC’s request for injunctive relief is GRANTED, and the Court will

impose a permanent injunction consistent with Part I of the Proposed Judgment.

II. Disgorgement

A. Legal Standard

In addition to injunctive relief, a district court may also order disgorgement, which

“serves to remedy securities law violations by depriving violators of the fruits of their illegal

conduct.” SEC v. Contorinis, 743 F.3d 296, 301 (2d Cir. 2014). Disgorgement is an equitable

8
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 9 of 16

remedy, permissible only where it “does not exceed a wrongdoer’s net profits and is awarded for

victims.” Liu v. SEC, 591 U.S. 71, 75 (2020). 6

Following Liu, the Second Circuit clarified the meaning of “victims” in SEC v. Govil, 86

F.4th 89 (2d Cir. 2023). There, the defendant caused his company “to engage in three fraudulent

securities offerings,” representing to investors that the company “would use the proceeds from

the transactions to satisfy outstanding debts and for general corporate purposes.” Id. at 93.

“Instead, he diverted over $7.3 million of the offering proceeds to his own private accounts.” Id.

The district court determined that disgorgement was warranted, reasoning that the defrauded

investors were victims of the defendant’s conduct because they were lied to, even if they “may

not have been financially harmed” as a result of the lie. Id. at 97.

The Second Circuit reversed, holding that “a ‘victim’ for purposes of § 78u(d)(5) is one

who suffers pecuniary harm from the securities fraud.” Id. at 102. The Circuit explained that an

equitable remedy is meant to “restore[] the status quo”—in the context of disgorgement, by

“returning the funds to victims.” Id. at 103 (quoting Liu, 591 U.S. at 80, 88) (cleaned up).

Allowing “defrauded investors who suffered no pecuniary harm . . . to receive the proceeds of

disgorgement,” the Circuit reasoned, would “confer[] a windfall on those who received the

benefit of the bargain.” Id. at 103. Therefore, for purposes of ordering disgorgement, it is not

enough that investors are lied to and “thus denied the right to make an informed decision when

considering whether to make [an] investment.” Id. at 105. “[O]ffending that right” does not

result in pecuniary harm.” Id. (citing Ciminelli v. United States, 598 U.S. 306, 315 (2023)).

6
Six months after Liu, “Congress enacted § 78u(d)(7), which “gives the SEC the power to ‘seek’ and federal courts
the power to ‘order’ the remedy of ‘disgorgement.’” SEC v. Govil, 86 F.4th 89, 99–100 (2d Cir. 2023) (discussing
15 U.S.C. § 78u(d)(7)). The Second Circuit has interpreted § 78u(d)(7) to limit disgorgement to the bounds
established by the Supreme Court’s decision in Liu. Id. at 102 (citing SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir.
2023)). But see SEC v. Hallam, 42 F.4th 316, 338 (5th Cir. 2022) (holding that “Section 78u(d) authorizes
disgorgement in a legal—not equitable—sense.”).

9
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 10 of 16

B. Application

The parties dispute whether the Circuit’s decision in Govil bars disgorgement of Ripple’s

profits from Institutional Sales. The Court finds that it does.

The SEC contends that ordering disgorgement would not run afoul of Govil because

Ripple’s violation of Section 5, via “entirely tainted transactions, caused pecuniary harm to

investors.” SEC Mem. at 17. Specifically, the SEC argues that Ripple sold XRP to certain

Institutional Buyers at “deep undisclosed discounts” as high as . Id. at 18. Because Ripple

failed to publicly register these discounted Institutional Sales, the SEC argues, “non-favored

investors” were deprived of “the information they needed to determine whether Ripple was

treating them worse and whether they could purchase [] XRP at a better price.” Id. The SEC

estimates that if Ripple had disclosed its “significant discounts to other investors,” non-favored

investors could have saved “potentially more than .” Id. at 19–20. The SEC further

contends that the discounted sales caused pecuniary harm by “put[ting] downward pressure on

the market price of XRP,” as investors who bought discounted XRP could sell for below-market

prices and still profit. Id. at 20.

Govil forecloses this argument. The SEC contends that Ripple “appears to have not

uniformly disclosed the disparate prices and discounts offered” to Institutional Buyers. Id. at 18.

The Circuit held, however, that “the right to make an informed decision when considering

whether to make [an] investment” is not a property interest that can be vindicated through

disgorgement. Govil, 86 F.4th at 105. As Ripple argues, many of the Govil investors would

have likely been dissuaded from investing—or, at least, valued the shares at a lower price—had

they known that the company’s founder intended to pocket the funds for his own use. See Ripple

Opp. at 20. Yet the Circuit found that the pecuniary-harm requirement was not satisfied, as the

10
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 11 of 16

district court acknowledged that “the investors received the return on the investment

contemplated at the outset.” Govil, 86 F.4th at 105.

Here, the SEC offers only speculative evidence that the Institutional Buyers did not

“receive[] the return on the investment contemplated.” Id; see also id. at 104 n.16 (noting that

“whether the investors actually suffered pecuniary harm would depend on the type of securities

held, the terms of those securities, and when those securities were sold,” a level of detail missing

from the record in Govil). The SEC’s estimate of lost potential savings comes from

an analysis conducted by SEC accountant Andrea Fox, who calculated “how much less

Institutional Buyers in the aggregate would have paid for XRP if the best price offered to

Institutional Buyers had been obtained by every Institutional Buyer.” 7 Fox Decl. ¶ 34, ECF No.

946. But, the SEC does not (and cannot) establish that Ripple would have, in fact, offered any

additional discounts to investors had it complied with Section 5’s registration requirements. It is

possible that some investors “could have demanded and potentially paid lower prices.” SEC

Mem. at 18. Yet, it is at least equally possible that Ripple would have opted to offer fewer and

smaller discounts overall. Cf. id. at 17 (explaining that “unregistered shares . . . are [generally]

worth less” than their registered counterparts). The fact that some investors “may have been able

to negotiate better deals if discounts [offered to others] were disclosed as required,” SEC Mem.

at 19, does not establish that they suffered pecuniary harm by paying the sticker price. Cf. Dura

Pharms., Inc. v. Broudo, 544 U.S. 336, 342 (2005) (noting that in fraud-on-the-market cases, “an

7
Ripple separately moves to strike Fox’s declaration and supporting exhibits, arguing that they were filed late. ECF
No. 951; see ECF Nos. 959, 960. In light of the Court’s finding that no disgorgement is permitted, the motion is
DENIED as moot.

11
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 12 of 16

inflated purchase price will not itself constitute or proximately cause the relevant economic

loss”). 8

Relying on SEC v. Ahmed, 72 F.4th 379 (2d Cir. 2023), the SEC also argues that

disgorgement is appropriate because Ripple’s failure to disclose the discounts “tainted” each of

the Institutional Sales. SEC Reply at 9, ECF No. 961. In Ahmed, the investment-manager

defendant “stole over $65 million” from his employer and ten portfolio companies, including by

negotiating transactions in which he had an undisclosed conflict of interest. 72 F.4th at 390. The

Second Circuit found that the conflicted transactions were “entirely tainted,” holding that the

defendant was obligated to disgorge the full amount he received. Id. at 397. But the Circuit’s

inquiry into the permissible amount of disgorgement sheds little light on the threshold question

here: whether the SEC has shown pecuniary harm at all such that disgorgement is warranted. In

Ahmed, which involved the defendant’s knowing misappropriation of millions of dollars from his

employer, there was no question that the employer had suffered an economic loss. See id. at

390–91. Here, pecuniary harm is far less apparent.

Because binding Circuit precedent precludes disgorgement based on the facts of this case,

the SEC’s request for disgorgement and prejudgment interest 9 is DENIED.

8
The SEC’s sole authority to the contrary, SEC v. iFresh, Inc., No. 22 Civ. 3200, 2024 WL 416709 (E.D.N.Y. Feb.
5, 2024), is an unpublished district court opinion that found (without analysis) the fact that stock prices were
artificially inflated sufficient to establish pecuniary harm. Id. at *3; see SEC Reply at 9, ECF No. 961. That case—
involving a consent order—required the district court to accept the SEC’s allegations of stock price inflation as true.
iFresh, Inc., 2024 WL 416709 at *3.
9
“[T]he amount on which a violator must pay prejudgment interest usually tracks the amount that the party is
ordered to disgorge.” Contorinis, 743 F.3d at 308.

12
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 13 of 16

III. Civil Penalties

A. Legal Standard

The SEC is also authorized to seek the imposition of civil monetary penalties, which

serve “the dual goals of punishment of the individual violator and deterrence of future

violations.” Off. Comm. of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 81 (2d

Cir. 2006) (quotation marks and citation omitted). “Courts can impose penalties in civil

injunctive actions not to exceed the greater of: (i) the gross pecuniary gain to a defendant as a

result of the violation, or (ii) a specified amount per violation, depending on whether the

violation falls in the first, second[,] or third penalty tier.” SEC v. Bajic, No. 20 Civ. 07, 2023

WL 6289953, at *4 (S.D.N.Y. Sept. 27, 2023) (citing 15 U.S.C. § 77t(d)(2); 15 U.S.C.

§ 78u(d)(3)(B)). A court may impose a first-tier penalty for any violation of the Exchange or

Securities Acts; a second-tier penalty if the violation “involved fraud, deceit, manipulation, or

deliberate or reckless disregard of a regulatory requirement”; and a third-tier penalty if, in

addition to meeting the second-tier requirements, the “violation directly or indirectly resulted in

substantial losses or created a significant risk of substantial losses to other persons.” Id.

(citations omitted). Because “[t]he term ‘violation’ is not defined by the statutory scheme,”

courts have discretion to determine the unit of violation for the purposes of imposing civil

penalties under the tier method. SEC v. Fowler, 6 F.4th 255, 264 (2d Cir. 2021); see id. at 265.

Although gross pecuniary gain or “the tier determines the maximum penalty, . . . the

actual amount of the penalty [is] left up to the discretion of the district court.” SEC v. Kern, 425

F.3d 143, 153 (2d Cir. 2005). In determining the appropriate penalty, courts may consider

factors including:

(1) the egregiousness of the defendant’s conduct; (2) the degree of the defendant’s
scienter; (3) whether the defendant’s conduct created substantial losses or the risk

13
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 14 of 16

of substantial losses to other persons; (4) whether the defendant’s conduct was
isolated or recurrent; and (5) whether the penalty should be reduced due to the
defendant’s demonstrated current and future financial condition.

SEC v. Rajaratnam, 918 F.3d 36, 44 (2d Cir. 2019) (citation omitted); see also id. at 45 (noting

that the list is not exhaustive); cf. Fowler, 6 F.4th at 266 (noting that the Circuit has not held that

“the civil penalty for a securities fraud offense needs to be proportional to the disgorgement

amount”). The Court may also consider “the extent to which other aspects of the relief and/or

judgment issued in this matter will have the desired punitive effect.” SEC v. Universal Exp.,

Inc., 646 F. Supp. 2d 552, 568 (S.D.N.Y. 2009), aff’d, 438 F. App’x 23 (2d Cir. 2011).

B. Application

The SEC asks the Court to impose a penalty of $876,308,712, equal to the net profits it

calculates for the Institutional Sales. SEC Mem. at 23. Ripple argues that a penalty of no more

than $10 million, or “about of Ripple’s actual gross revenues . . . from pre-Complaint

Institutional Sales,” is appropriate. Ripple Opp. at 30 (citation omitted).

The Court finds that a first-tier penalty is appropriate in this case, which involves no

allegations of “fraud, deceit, [or] manipulation,” and no conclusively established “deliberate or

reckless disregard of a regulatory requirement.” 15 U.S.C. § 77t(d)(2)(B); see supra Part I.B.

Although Ripple’s gross pecuniary gain from the Institutional Sales sets a higher statutory

ceiling, the Court finds that the tier-analysis method more closely tailors the penalty to the scope

of Ripple’s actual wrongdoing than the parties’ (virtually) all-or-nothing requests.

As to the amount of the penalty, the Court has discussed the second and fourth

Rajaratnam factors, which overlap with the factors relevant to injunctive relief, above. See

supra Part I.B. On the first factor, the egregiousness of Ripple’s conduct, there is no question

that the recurrent, highly lucrative violation of Section 5 is a serious offense. However, this case

14
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 15 of 16

does not involve allegations of fraud, misappropriation, or other more culpable conduct.

Relatedly, as to the third factor, the SEC has not established that Ripple’s failure to register the

Institutional Sales caused substantial losses (or the risk thereof) to investors. See supra Part II.B.

And, on the fifth factor, Ripple does not contest that its current financial condition does not merit

a reduced penalty. See Ripple Opp. at 28–29.

Beyond the Rajaratnam factors, the Court considers that Ripple will not be ordered to

pay disgorgement, which dictates in favor of a larger penalty to accomplish “the desired punitive

effect.” Universal Exp., Inc., 646 F. Supp. 2d at 568. The Court finds, therefore, that a per-

violation penalty at the first-tier maximum is appropriate.

The final step is to define and count the “violations” involved in the Institutional Sales.

Because Section 5’s registration requirement is “transaction-specific,” it follows that each

unregistered transaction constitutes a separate violation of the statute. Cavanagh, 155 F.3d at

133; see also SEC v. Colonial Inv. Mgmt. LLC, 381 F. App’x 27, 29 (2d Cir. 2010) (summary

order) (affirming per-transaction penalties calculation). The SEC suggests that each of Ripple’s

“1,700 relevant contracts” constitutes a separate violation. SEC Mem. at 23–24 n.8. Ripple

responds that the “1,700 relevant contracts” figure includes “hundreds of contracts related to

Programmatic Sales and Other Distributions,” which should be excluded. Ripple Opp. at 19

n.20. But, Ripple does not offer its own tabulation of the relevant contracts, and the SEC does

not respond to Ripple’s contention in its reply brief. Based on the Court’s independent analysis

of Ripple’s expert report summarizing the relevant contracts, see Schwarz Rep., ECF No. 582-7,

the Court finds that 1,278 transactions violated Section 5, resulting in a civil penalty of

15
 Case 1:20-cv-10832-AT-SN Document 973 Filed 08/07/24 Page 16 of 16

$125,035,150. 10 Accordingly, the SEC’s request for a civil monetary penalty is GRANTED in

part, and the Court will impose a penalty of $125,035,150.

CONCLUSION

The SEC’s motion for remedies and the entry of final judgment is GRANTED IN PART

and DENIED IN PART. The Court shall enter a final judgment enjoining Ripple from further

violations of the securities laws and imposing a civil penalty of $125,035,150. The Clerk of

Court is directed to terminate the motions at ECF Nos. 943, 948, and 951.

SO ORDERED.

Dated: August 7, 2024

10
The Court arrived at this figure by first tabulating the 1,278 “Sales Contracts” listed in Exhibit C of the expert’s
report, which excluded “Programmatic Contracts,” “Service Contracts,” and “Other Contracts.” Schwarz Rep. at
80–124; see id. ¶¶ 18–55. The Court then determined the applicable penalty for each contract based on its date. See
17 C.F.R. § 201.1001, Tbl. I; Adjustments to Civ. Monetary Penalty Amounts, Release No. 6521, 2024 WL 111023
(Jan. 5, 2024) (“Release No. 6521”). For contracts entered into on or after November 2, 2015, the penalty is
currently $115,231 per contract. Release No. 6521. For contracts entered into between March 6, 2013 and
November 2, 2015, the penalty is $80,000 per contract. 17 C.F.R. § 201.1001, Tbl. I. And, for contracts entered
into between March 4, 2009 and March 5, 2013, the penalty is $75,000 per contract. Id. For the four undated
contracts, the Court applied the current inflation-adjusted penalty amount. Finally, the Court totaled the per-contract
penalties to arrive at a civil penalty of $125,035,150. This sum is concededly an estimate of the maximum first-tier
penalty; it is possible that the contracts listed in Exhibit C are either an incomplete or overinclusive list of Ripple’s
Institutional Sales during the relevant period. Because neither party provided a more specific calculation, however,
the Court believes that its estimate is an adequate approximation.

16