SEC charges TrustToken and TrueCoin for misleading stablecoin investments

Mila September 24, 2024

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Key Takeaways

TrustToken and TrueCoin settled with the SEC over misleading TUSD investment practices.
TrustToken and TrueCoin falsely claimed stablecoin was fully backed by U.S. dollars while investing in risky offshore funds.

The SEC has announced settled charges against crypto enterprises TrustToken and TrueCoin for their roles in misleading investors about the stability and security of their investment in the stablecoin TrueUSD (TUSD).

The charges, disclosed on September 24, 2024, also encompass the unregistered offer and sale of securities. According to the SEC, the complaint, which was filed in the US District Court for the Northern District of California, outlines a series of fraudulent activities by the two companies.

TrueCoin, as the issuer of TUSD, and TrustToken, as the developer of the TrueFi lending protocol, are alleged to have sold investment contracts linked to TUSD without proper registration from November 2020 through April 2023.

The SEC’s allegations highlight that the companies marketed TUSD as a safe investment, backed “one-to-one” by US dollars or equivalent assets. However, investigations revealed that a significant portion of the assets supposed to back the stablecoin were instead placed in a risky offshore investment fund. This move was aimed at generating higher returns, thus exposing investors to undisclosed risks.

By March 2022, after offloading 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 with the fund but continued to assure investors of TUSD’s secure backing.

Acting Chief of the SEC’s Crypto Assets & Cyber Unit, Jorge G. Tenreiro, emphasized the dangers of such deceptive practices, stating,

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

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 is required to disgorge $340,930 along with prejudgment interest of $31,538, pending court approval.