• The SEC settled with TrustToken and TrueCoin for misleading investors about TrueUSD’s (TUSD) reserve backing.
• By September 2024, 99% of TUSD’s backing was invested in a risky offshore fund, contrary to claims.

The Securities and Exchange Commission (SEC) has struck a settlement with crypto firms TrustToken and TrueCoin, who were accused of deceiving investors about the stablecoin TrueUSD (TUSD).

According to the SEC, by September 2024, about 99% of the reserves that were meant to underpin the TUSD had been put in a speculative offshore fund.

This disclosure happened despite the corporations’ previous statements that the stablecoin was completely backed one-to-one by US dollars, raising severe concerns about the transparency and risk exposure of these investments.

TrustToken and TrueCoin Misled Investors Despite Awareness of Redemption Issues 

The SEC investigation discovered that from November 2020 to April 2023, TrustToken and TrueCoin offered and sold investment contracts connected to TUSD without legal registration.

It was discovered that by March 2022, after the TUSD operations were transferred to an offshore firm, more than half a billion dollars in assets presumably backing the stablecoin had been shifted into a speculative fund.

Even after becoming aware of redemption problems with this fund in the fall of 2022, TrustToken and TrueCoin persisted in trying to persuade investors that TUSD was 100% backed by US dollars.

This misinformation exposed investors to significant unknown risks, contradicting the companies’ marketing promises about TUSD’s stability and safety.

Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit, noted that these fraudulent acts showed the risks of such behavior in the crypto industry. He stated:

“TrustToken and TrueCoin sought profits for themselves by exposing investors to substantial, undisclosed risks.”

Settlement Fines and TUSD’s Tarnished Reputation Revealed

TrustToken and TrueCoin each agreed to pay $163,766 in civil fines as part of the settlement. TrueCoin is also forced to disgorge $340,930 plus $31,538 in prejudgment interest. It’s important to emphasize that, while both corporations agreed to the settlement terms, they didn’t admit or deny the SEC’s charges.

The settlement includes injunctions against future violations of federal securities laws, which is a significant step toward holding cryptocurrency firms accountable for their activities.

This lawsuit has tarnished TUSD’s reputation, especially as TUSD positioned itself as a stablecoin wholly backed by US dollars or equivalent assets. Earlier this year, as we previously reported, TUSD’s stability was called into doubt when it witnessed a depegging event, temporarily falling below the $1 threshold.

Although the corporation claimed to be the “first” dollar-backed stablecoin with “live on-chain attestations,” the recent SEC case reveals significant differences between its promises and actual actions.

The SEC’s complaint also claimed that TUSD was provided alongside profit-making opportunities, which might qualify it as a security under the Howey test. This development places TUSD within the SEC’s regulatory framework, strengthening the agency’s position that certain crypto assets are subject to securities law.