The U.S. Securities and Exchange Commission (SEC) has taken action against TrueCoin LLC and TrustToken Inc., the creators of the TrueUSD (TUSD) stablecoin, revealing that nearly all of TUSD's reserves were invested in a high-risk offshore fund. This discovery has led to charges of fraudulent and unregistered sales of investment contracts, which both companies have settled without admitting or denying the allegations.
The SEC's investigation uncovered that TrueCoin and TrustToken misled investors by claiming that TUSD was fully backed by U.S. dollars, creating a false sense of security regarding the safety of their funds. Between November 2020 and April 2023, the companies marketed TUSD through their TrueFi lending platform, presenting it as a secure, dollar-backed investment. In reality, a significant portion of these reserves—over $500 million—had been diverted to speculative investments that exposed investors to considerable risk.
By March 2022, it was revealed that 99% of TUSD’s reserves were tied to this risky offshore fund. The situation became increasingly problematic, with difficulties in redemptions surfacing by fall 2022. Despite these challenges, TrueCoin and TrustToken continued to assure investors about the stability of their investment, misleading them about the actual risk involved.
Jorge G. Tenreiro, the SEC's Acting Chief of the Crypto Assets & Cyber Unit, criticized the companies for prioritizing profits while endangering investors' capital through misleading claims about TUSD's stability.
As part of the settlement, TrueCoin will pay $340,930 in disgorgement, plus an additional $31,538 in interest, pending court approval. Both companies will also pay civil penalties of $163,766 each and have agreed to refrain from future violations of securities laws.
This case adds to the SEC's ongoing crackdown on the cryptocurrency industry, which has seen a record $4.68 billion in fines collected in 2024. During a recent congressional hearing, lawmakers grilled SEC Chairman Gary Gensler on the agency’s approach to digital asset regulation. Committee Chairman Patrick McHenry accused the SEC of overreach, describing Gensler’s leadership as transforming the agency into a "rogue" regulator.
As the regulatory landscape continues to evolve, the TrueUSD case underscores the importance of transparency and accountability in the crypto market, reinforcing the need for robust investor protections.
September 2024, Cryptoniteuae