The U.S. Securities and Exchange Commission (SEC) has reached a proposed settlement with crypto firm Ripple Labs Inc. that dramatically scales back the penalty imposed on the firm for violating securities rules — a deal that is sparking dissent from one SEC commissioner.
Previously, the SEC sued Ripple for breaching securities laws by raising capital through the sale of unregistered crypto tokens. Ultimately, a U.S. court found that the firm had violated the law in certain token sales, but not others. As a result, it imposed permanent injunctions against the company and ordered a US$125-million penalty. Both sides were appealing the verdict.
Now, the SEC has reached a proposed settlement with the company, which would see it pay a reduced US$50-million penalty and asks the court to drop the injunction against it.
“The commission’s decision to exercise its discretion and seek a resolution of this pending enforcement action rests on its judgment that such resolution will facilitate the commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, not on any assessment of the merits of the claims alleged in the action,” the SEC said in a release.
However, SEC commissioner Caroline Crenshaw, who has been critical of the SEC’s direction on crypto regulation, refused to support the proposed settlement, which requires court approval.
“This settlement, alongside the programmatic disassembly of the SEC’s crypto enforcement program, does a tremendous disservice to the investing public and undermines the court’s role in interpreting our securities laws,” she said in a statement on the case.
Crenshaw — the regulator’s lone Democratic commissioner — said that the settlement undermines both the court’s order in this case, and the SEC and its enforcement efforts.
“It subverts the clear and honest application of the facts to the law, a cornerstone of any effective law enforcement program,” she said — adding that, while the SEC may rewrite the rules on whether crypto sales need to be registered in the future, that doesn’t change the laws that prevailed at the time.
“Further, we have no hint of what those future rules might look like or how long it will take to put them in place — if ever,” she said. “So, we are today accepting a diluted settlement, that erases the investor protections we already won, based on a non-existent framework that may or may not come to fruition potentially years from now, on the basis that the current framework in place — of applying the facts to the law — was not industry or innovation-friendly.”
“This creates a regulatory vacuum with no end in sight,” she warned.
She argued that the the settlement is not in the best interests of investors or the markets and she called on the courts to “take a long hard look at the commission’s attempt to claw back the meritorious claims it previously made, and gut its own enforcement program from the inside out.”