US SEC Charges TrueCoin and TrustToken for Deceptive Stablecoin Investment Scheme
The United States Securities and Exchange Commission (SEC) has taken legal action against two cryptocurrency companies, TrueCoin and TrustToken, for their involvement in a fraudulent stablecoin investment program and the unauthorized offering and sale of securities.
In an official statement, the SEC revealed that it has filed a complaint in the U.S. District Court for the Northern District of California. The charges have been settled, with both companies collectively ordered to pay a penalty of $700,000.
SEC Accuses TrueCoin and TrustToken
TrustToken is the creator of the lending protocol TrueFi, while TrueCoin issued the stablecoin TrueUSD (TUSD). The SEC alleges that the companies conducted an unregistered offering and sale of profit-making opportunities and investment contracts through TUSD from November 2020 to April 2023.
While TrustToken claims that TUSD is the first USD-pegged stablecoin to provide daily attestations for its underlying reserves by independent third-party institutions, the SEC’s complaint reveals a different story.
The agency contends that TrustToken and TrueCoin falsely marketed TUSD as an asset fully backed by U.S. dollars (USD), even though a significant portion of the funds backing the stablecoin had been invested in a speculative scheme. The operators of the TrueFi protocol used the USD reserves intended for TUSD to engage in a high-risk offshore investment fund in search of additional returns.
By the time the creators of TrueFi sold TUSD operations to an offshore company in March 2022, they had invested over $500 million of the funds that were supposed to support the stablecoin. Unfortunately, redemption issues were discovered at the offshore fund later that year. Despite this, TrustToken and TrueCoin continued to deceive TUSD investors with false claims about the stablecoin being backed 1:1 by USD.
The SEC alleges that by September 2024, TrustToken and TrueCoin had invested 99% of the reserves supporting TUSD in the risky offshore fund.
TrueCoin and TrustToken Settle Charges
The two cryptocurrency companies have reached a settlement with the SEC, agreeing to pay civil penalties, disgorgement, and prejudgment interest.
“This case exemplifies the importance of registration, as investors in these products are still being deprived of crucial information needed to make fully informed decisions,” stated Jorge Tenreiro, the acting chief of the SEC’s Crypto Assets & Cyber Unit.
As a consequence of the SEC’s actions, some crypto projects, such as decentralized exchange Curve Finance, are contemplating the removal of TUSD from their list of collateral tokens.