SEC Charges TrueCoin, TrustToken Over Fraudulent Stablecoin

The Securities and Exchange Commission (SEC) of the United States has brought forth charges against two cryptocurrency firms, TrueCoin and TrustToken, related to their deceptive stablecoin investment scheme and the unregistered offering and sale of securities.

Per a press release from the SEC, the complaint was filed in the U.S. District Court for the Northern District of California, and both companies have reached a settlement requiring them to collectively pay a fine of $700,000.

SEC Takes Action Against TrueCoin and TrustToken

TrustToken is the creator of the lending platform TrueFi, which facilitated the issuance of the stablecoin TrueUSD (TUSD) by TrueCoin. The entities introduced TUSD in 2018, and the SEC has charged them with conducting unregistered offers and sales of profit-generating opportunities and investment contracts through the stablecoin from November 2020 to April 2023.

While TrustToken claims that TUSD is the first USD-pegged stablecoin to provide daily attestations from independent third-party institutions regarding its underlying reserves, the SEC’s allegations present a different narrative.

The agency asserted that TrustToken and TrueCoin misrepresented TUSD as being fully backed by U.S. dollars (USD), while a significant portion of the funds intended to support the stablecoin was invested in a high-risk scheme. The TrueFi protocol operators utilized the USD meant for TUSD’s backing to invest in a speculative offshore fund, seeking additional profits.

When the TrueFi creators transferred TUSD operations to an offshore entity in March 2022, they had already allocated over $500 million of the reserves meant for the stablecoin. Unfortunately, TrustToken and TrueCoin ran into redemption issues with the offshore fund later that year but continued to mislead TUSD investors with incorrect claims regarding the stablecoin being backed 1:1 by USD.

According to the SEC, by September 2024, 99% of the reserves meant to back TUSD were invested in this hazardous fund.

TrueCoin and TrustToken Resolve Issues with SEC

The cryptocurrency firms have come to a resolution with the SEC, agreeing to pay civil penalties, disgorgement, and prejudgment interest.

“This case illustrates the critical importance of registration, as investors in these products are denied essential information needed for informed decision-making,” stated Jorge Tenreiro, acting chief of the SEC’s Crypto Assets & Cyber Unit.

In light of the SEC’s actions, some cryptocurrency projects, including the decentralized exchange Curve Finance, are actively considering the removal of TUSD from their list of collateral tokens.