The United States Securities and Exchange Commission (SEC) unveiled charges against two crypto companies, TrueCoin and TrustToken, for their fraudulent stablecoin investment program and unregistered offer and sale of securities.
According to a press release by the agency, the SEC filed the complaint at the U.S. District Court for the Northern District of California and has settled the charges against the firms, ordering them to pay a collective penalty of $700,000.
SEC Charges TrueCoin and TrustToken
TrustToken is the developer of the lending protocol TrueFi on which TrueCoin issued the stablecoin TrueUSD (TUSD). The entities launched TUSD in 2018; the SEC accused them of engaging in the unregistered offer and sale of profit-making opportunities and investment contracts in the form of the stablecoin from November 2020 until April 2023.
TrustToken claims TUSD is the first USD-pegged stablecoin to release daily attestations for its underlying reserves by independent third-party institutions, but the SEC’s complaint says otherwise.
The agency alleged that TrustToken and TrueCoin falsely touted TUSD as an asset fully backed by U.S. dollars (USD), whereas a massive portion of the funds backing the token had been invested in a speculative scheme. The operators of the TrueFi protocol used the USD meant to be backing TUSD to bet on a risky offshore investment fund in an attempt to earn additional returns.
By the time the creators of TrueFi sold TUSD operations to an offshore company in March 2022, they had invested more than $500 million of the funds meant to back the stablecoin. Unfortunately, TrustToken and TrueCoin discovered redemption problems at the offshore fund later that year. Still, they continued to mislead TUSD investors with false statements about the stablecoin being backed 1:1 by the USD.
The SEC asserted that TrustToken and TrueCoin had invested 99% of the reserves backing TUSD in the risky fund by September 2024.
TrueCoin and TrustToken Settle With SEC
The crypto companies have settled with the SEC and agreed to pay civil penalties, disgorgement, and prejudgment interest.
“This case is a prime example of why registration matters, as investors in these products continue to be deprived of the key information needed to make fully informed decisions,” said acting chief of SEC’s Crypto Assets & Cyber Unit Jorge Tenreiro.
Meanwhile, some crypto projects, like the decentralized exchange Curve Finance, are considering removing TUSD from its list of collateral tokens following the SEC’s indictment.