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

The order came 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 US$2 billion in penalties, while Ripple said it shouldn’t have to pay more than US$10 million. In her ruling Wednesday, US 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%, “recognising 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 didn’t respond to a request for comment on the ruling.

The judge granted the SEC’s request for an injunction barring Ripple from conducting unregistered offerings of XRP to institutional investors. But she denied the agency’s bid for Ripple to disgorge profits from its sales. The regulator had sought more than US$876 million in disgorgement and more than US$198 million in interest, along with an US$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, US District Court, Southern District of New York (Manhattan).

  - Bloomberg