- TrustToken and TrueCoin misled investors by falsely promoting TUSD as fully backed, risking significant investor funds.
- 99% of TUSD’s reserves were in risky offshore funds by 2024, exposing investors despite claims of full backing.
- The SEC’s settlement with TrustToken and TrueCoin highlights the need for better oversight in the unstable stablecoin market.
The US Securities and Exchange Commission has disclosed the settlement terms with TrueCoin and TrustToken. Allegations that TrueCoin misrepresented TrueUSD (TUSD) as a fully supported stablecoin and was therefore suspected of scamming investors led to the settlement.
99% of TUSD’s reserves by September 2024 were purportedly held in speculative offshore funds. These actions exposed investors to significant risks while falsely promoting the investment as safe.
Unregistered Securities and False Marketing Claims
The SEC claims that between November 2020 and April 2023, TrueCoin and TrustToken offered unregistered securities using the digital asset TUSD. The SEC’s complaint also highlighted that the companies promised profit-making opportunities via TrueFi, their so-called lending protocol. Additionally, they continued misleading investors despite knowing about TUSD’s backing issues.
The SEC emphasized that these misleading tactics resulted in severe consequences for investors. By March 2022, after selling TUSD operations to an offshore entity, TrueCoin and the new entity funneled more than half a billion dollars into risky investment funds. Redemption issues arose by the Fall of 2022, but both companies persisted in marketing TUSD as one-for-one backed by US dollars, significantly endangering investors.
Penalties and Future of the Stablecoin Market
As part of the settlement, TrustToken and TrueCoin will each pay civil penalties of $163,766. TrueCoin will also pay an additional $340,930 in disgorgement, plus $31,538 in prejudgment interest. Notably, neither company admitted nor denied the SEC’s allegations. However, both agreed to court orders prohibiting them from violating federal securities laws.
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The SEC’s Acting Chief of the Crypto Assets & Cyber Unit, Jorge G. Tenreiro, emphasized the importance of registering securities to protect investors. He noted that misrepresentation in such unregistered offerings deprives investors of crucial information necessary for informed decisions. Tenreiro pointed to this case as an example of why proper oversight in the crypto sector remains critical.
Despite these regulatory developments, TUSD’s depegging in early 2023 further questioned its stability. The SEC’s investigation remains ongoing, raising broader concerns about the future of the stablecoin market.
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