SEC charges TrustToken and TrueCoin with fraudulent stablecoin investments

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SEC has announced has settled charges against crypto businesses TrustToken and TrueCoin for their role in misleading investors about the stability and security of their TrueUSD (TUSD) stablecoin investment.

The charges, disclosed on September 24, 2024, also include the unregistered offer and sale of securities. According to the SEC, the complaint, which was filed in the US District Court for the Northern District of California, outlines a series of fraudulent activities by the two companies.

TrueCoin, as the issuer of TUSD, and TrustToken, as the developer of the TrueFi lending protocol, allegedly sold TUSD-related investment contracts without proper registration from November 2020 to April 2023.

The SEC’s claims highlight that the companies marketed TUSD as a safe investment backed “one-to-one” by US dollars or equivalent assets. However, investigations revealed that a significant portion of the assets that should support the stable currency were instead placed in a risky offshore investment fund. This move was aimed at generating higher returns, thereby exposing investors to undisclosed risks.

By March 2022, after offloading TUSD operations to an offshore entity, more than half a billion dollars had reportedly been funneled into this hedge fund. By the fall of 2022, both companies were aware of the fund’s redemption problems, but continued to reassure investors of TUSD’s safe backing.

Acting Head of the SEC’s Crypto Assets & Cyber ​​Unit, Jorge G. Tenreiro, highlighted the dangers of such deceptive practices, stating:

“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks by making false representations about the safety of the investment.”

In response to the allegations, both TrueCoin and TrustToken agreed to a settlement without admitting or denying the allegations. The settlement includes injunctions against future violations of federal securities laws and the payment of civil penalties of $163,766 by each company. In addition, TrueCoin must pay $340,930 along with prejudgment interest of $31,538 pending court approval.

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