U.S. SEC Charges TrustToken and TrueCoin Over Fraudulent Stablecoin Investments

The United States Securities and Exchange Commission (SEC) has charged two cryptocurrency firms, TrustToken and TrueCoin, with securities violations related to their involvement with the TrueUSD (TUSD) stablecoin.

According to the regulator, TrueCoin issued TUSD stablecoin, and TrustToken developed and operated TrueFi (a lending protocol). 

Details of the Fraudulent Stablecoin Investments

The SEC alleged that from November 2020 until April 2023, the firms engaged in the unregistered offer and sale of investment contracts in the form of the crypto asset TUSD and profit-making opportunities concerning TrueUSD on TrueFi. 

Furthermore, the companies allegedly marketed TUSD as a safe investment, fully backed by the U.S dollars or their equivalent assets. 

However, investigations revealed that a significant portion of the assets supposed to back the stablecoin had been invested in a speculative and risky offshore investment fund. This move was aimed at generating higher returns, thus exposing investors to undisclosed risks.

By March 2022, after selling TUSD operations to an offshore entity, more than half a billion dollars were reportedly funneled into this speculative fund. By the fall of 2022, both companies were reportedly aware of redemption issues at the offshore fund but continued to assure investors of TUSD’s secure backing.

The SEC stated that by September 2024, 99% of the reserves backing TUSD were invested in the speculative fund.

Highlighting the extent of the companies offense, Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit, said:

“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment. 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.”

TrustToken and TrueCoin Settles with SEC

In response to the charges, both TrueCoin and TrustToken have agreed to a settlement without admitting or denying the allegations. 

The settlement includes injunctions against future violations of federal securities laws and the payment of civil penalties amounting to $163,766 by each company. 

Additionally, TrueCoin has agreed to disgorgement of $340,930 along with prejudgment interest of $31,538, pending court approval.