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In a significant development in the cryptocurrency regulatory landscape, TrueCoin LLC and TrustToken Inc., the companies behind the TrueUSD (TUSD), have reached a settlement with the United States Securities and Exchange Commission (SEC) over allegations of fraud and unregistered sales of investment contracts.
The settlement, announced on September 24, 2024, by the US SEC, comes amidst growing scrutiny of the crypto market and its operators.
TrueCoin and TrustToken accused of sale of investment contracts
The SEC’s complaint, filed in the US District Court for the Northern District of California, reveals that between November 2020 and April 2023, TrueCoin and TrustToken engaged in the unregistered offering and sale of investment contracts related to TUSD, as well as profit opportunities associated with the TrueFi lending protocol developed by TrustToken.
The SEC they characterized TrueUSD as a “purported stablecoin,” asserting that the companies falsely marketed it as a safe investment fully backed by US dollars.
A substantial portion of the assets intended to back TUSD had been allocated to a speculative offshore investment fund, which posed significant risks to investors.
According to the SEC, by March 2022, after selling TUSD operations to an offshore entity, TrueCoin and its partner had invested more than half a billion dollars of the reserves purportedly backing TUSD in this risky fund.
Despite being aware of redemption issues at the fund by Fall 2022, the companies continued to mislead investors, claiming that TUSD was backed one-for-one by US dollars.
By September 2024, it was revealed that 99% of the reserves backing TUSD were tied up in this speculative fund.
Jorge G. Tenreiro, the Acting Chief of the SEC’s Crypto Assets & Cyber Unit, said that TrueCoin and TrustToken “sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment.”
Tenreiro underscored the case as a critical example of why proper registration and transparency are essential, stating that investors continue to be deprived of the vital information needed to make informed decisions.
The settlement awaits the court’s approval
In the settlement, which requires court approval, TrueCoin and TrustToken agreed to pay civil penalties of $163,766 each.
Additionally, TrueCoin will pay a disgorgement of $340,930 along with a prejudgment interest of $31,538.
Importantly, the companies did not admit or deny the allegations as part of the settlement.
Despite the settlement, the SEC says the investigations are ongoing, highlighting the increasing regulatory pressure on cryptocurrency firms to adhere to established laws and protect investors.
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