The U.S. Securities and Exchange Commission (SEC) has initiated legal action against TrueCoin and TrustToken, accusing them of conducting fraudulent and unregistered sales related to the TrueUSD (TUSD) stablecoin, including misleading statements about its asset backing. This announcement was made on September 24.
Both TrueCoin and TrustToken have opted to settle the SEC’s allegations without admitting to any wrongdoing. Each company will face civil penalties amounting to $163,766 and a further $340,930 in disgorgement for TrueCoin, which includes an interest fee of $31,538, subject to court approval.
Details of the SEC Allegations
The SEC’s case outlines that TrueCoin and TrustToken initially promoted TUSD as being fully backed by U.S. dollars or equivalent assets, despite investing a significant portion of these assets into a high-risk offshore fund.
By March 2022, the backing for TUSD exceeded half a billion dollars, which was primarily directed towards this speculative fund. Even with knowledge of potential redemption problems by autumn 2022, the companies continued to falsely represent TUSD as having a one-to-one dollar backing.
The regulatory body revealed that as of September 2024, a staggering 99% of TUSD reserves were allocated in the speculative fund. Both TrueCoin and TrustToken have been accused of mishandling investor funds, prioritizing profits for themselves over the safety of their clients, thereby exposing users to significant, unreported risks through their misleading communications regarding the investment’s safety.
Ongoing Unregistered Sales and Investment Contracts
From November 2020 to April 2023, the SEC noted that both companies partook in unregistered offerings and sales of TUSD investment contracts as well as profit-generating opportunities through TrueFi, a decentralized marketplace where users can lend stablecoins to companies in return for interest accumulations.
As of now, TrueUSD boasts a market capitalization of nearly $494 million, although it has begun to experience a slight de-pegging from its dollar parity following the recent developments.
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