The United States Securities and Exchange Commission (SEC) has reached a settlement with TrueCoin and TrustToken over allegations of fraudulent and unregistered sales of investment contracts involving the TrueUSD stablecoin.
The SEC filed a complaint against the companies in the District Court for Northern California and the charges were settled on September 24th after the defendants opted not to have the case decided by a judge.
According to the SEC, TrueCoin and TrustToken offered and sold unregistered investment contracts in the form of TrueUSD (TUSD) between November 2020 and April 2023, promising “profit-making opportunities with respect to TrueUSD on TrueFi,” a lending protocol.
Additionally, the SEC accused the companies of false marketing by claiming that TUSD was fully backed by US dollars or their equivalent, when in fact the funds backing the stablecoin had been invested in a risky overseas investment fund.
By the fall of 2022, the companies were aware of potential difficulties with TUSD redemption. However, by September 2024, the SEC stated that 99% of the funds backing TUSD had been invested in the overseas fund.
The SEC also claimed that by approximately March 2022, “TUSD operations had been sold to an offshore entity.” The coin was commonly referred to as “Justin Sun-linked.”
TrueCoin and TrustToken did not admit or deny the allegations but agreed to final judgments that prohibit them from further violations of federal securities laws and require them to pay civil penalties of $163,766 each. TrueCoin will also pay disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are subject to court approval.
There were already noticeable issues with TUSD prior to the SEC charges. In June 2023, TUSD depegged after it paused minting through crypto custody service Prime Trust, which had just received a cease-and-desist order from Nevada regulators on suspicion of insolvency.
In January, the stablecoin depegged again due to massive selling caused by difficulties in providing real-time attestations of its reserves, suggesting under-collateralization. The issuers attributed the problem to mining activity associated with Binance Launchpool and hired a second auditing firm.
Binance delisted several TUSD trading pairs in March but did not fully delist the coin. Cointelegraph was unable to reach TrueCoin for comment.