Key Points
- The SEC alleges TrueCoin and TrustToken engaged in fraudulent and unregistered sales of investment contracts involving the TrueUSD (TUSD) stablecoin from November 2020 to April 2023.
- Despite marketing TUSD as fully backed by U.S. dollars, a substantial portion of backing assets were reportedly invested in a risky offshore fund, with 99% of reserves in this fund by September 2024.
SEC Uncovers Misrepresentation of TUSD Backing
The Securities and Exchange Commission (SEC) has taken action against TrueCoin LLC and TrustToken Inc., charging them with defrauding investors through their stablecoin investment program. The companies allegedly misrepresented the backing of their TrueUSD (TUSD) stablecoin, claiming it was fully backed by U.S. dollars or equivalent assets when a significant portion was actually invested in a speculative offshore fund.
According to the SEC’s complaint, filed in the U.S. District Court for the Northern District of California, the fraudulent activities occurred between November 2020 and April 2023. During this period, TrueCoin and TrustToken allegedly offered and sold unregistered investment contracts in the form of TUSD and related profit-making opportunities on the TrueFi lending protocol.
Risky Investments and Continued Misrepresentation
The SEC’s investigation revealed that by March 2022, after TUSD operations were sold to an offshore entity, more than half a billion dollars of assets purportedly backing TUSD had been invested in a speculative fund. Despite becoming aware of redemption problems at this offshore fund by Fall 2022, TrueCoin and TrustToken allegedly continued to make false statements to investors, maintaining that TUSD was backed one-for-one by U.S. dollars.
The situation reportedly escalated, with the SEC alleging that by September 2024, a staggering 99% of the reserves backing TUSD were invested in the speculative fund. This level of exposure to a risky investment vehicle stands in stark contrast to the safe and trustworthy image marketed to investors.
SEC’s Response and Settlement Terms
Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit, emphasized the importance of this case, stating, “This case is a prime example of why registration matters, as investors in these products continue to be deprived of the key information needed to make fully informed decisions.”
Without admitting or denying the allegations, TrueCoin and TrustToken have agreed to settle the SEC’s charges. The settlement terms include:
- Consenting to final judgments enjoining them from violating applicable federal securities laws
- Payment of civil penalties of $163,766 each
- TrueCoin agreeing to pay disgorgement of $340,930 with prejudgment interest of $31,538
These settlements are subject to court approval and represent a significant regulatory action in the cryptocurrency space, highlighting the SEC’s ongoing efforts to protect investors in the rapidly evolving digital asset market.
