SEC Settles with TrueCoin and TrustToken Over TrueUSD

Key Takeaways

• Both TrueCoin and TrustToken have agreed to the settlement without admitting or denying the charges.
• SEC alleged that TrueCoin and TrustToken marketed TrueUSD as fully backed by U.S. dollars or equivalent assets

The U.S. Securities and Exchange Commission (SEC) has settled charges with TrueCoin and TrustToken, accusing both companies of fraudulent and unregistered sales of investment contracts tied to the TrueUSD (TUSD) stablecoin. The settlement was reached on September 24 after the companies declined to have the case decided by a judge. TrueCoin and TrustToken agreed to the settlement without admitting or denying the charges.

SEC alleged that TrueCoin and TrustToken marketed TrueUSD as fully backed by U.S. dollars or equivalent assets. However, the SEC revealed that a substantial portion of TUSD’s reserves had been invested in a risky offshore fund.

By March 2022, over half a billion dollars of the assets supposedly backing TUSD were funnelled into this speculative investment. Despite being aware of potential redemption issues by the fall of 2022, the companies continued to misrepresent TUSD as a stable, fully-backed asset.

As of September 2024, 99% of the reserves backing TrueUSD were still tied up in this offshore fund, according to the SEC. The regulator accused TrueCoin and TrustToken of mismanaging investor funds, prioritizing profits for themselves while exposing users to undisclosed risks.

Additionally, the SEC alleged that between November 2020 and April 2023, both companies engaged in unregistered sales of TUSD investment contracts on TrueFi, a decentralized lending platform. Through TrueFi, users could lend stablecoins to companies for profit, but these activities were conducted without proper registration, violating securities laws.

The settlement terms include civil penalties of $163,766 for both TrueCoin and TrustToken. TrueCoin is also required to pay $340,930 in disgorgement, along with $31,538 in interest. These penalties are pending approval by the court.

TrueUSD has faced instability for some time. In June 2023, the stablecoin temporarily de-pegged from the U.S. dollar after Prime Trust, the custodian responsible for minting TUSD, paused its services due to regulatory issues.

Prime Trust was later issued a cease-and-desist order by Nevada regulators amid concerns about its solvency. Earlier in January 2023, TUSD experienced another de-pegging after difficulties with real-time attestations of its reserves. The incident raised concerns about under-collateralization and further damaged trust in the stablecoin.

The SEC highlighted the significance of these misrepresentations, noting that investors were unaware of the risks associated with TUSD’s reserves. Despite these issues, TrueUSD still holds a market cap of nearly $494 million.