Two crypto companies, TrustToken and TrueCoin, have been charged by the SEC for defrauding their investors related to a stablecoin investment program.
The Security and Exchange Commission announced fraud-related charges against TrueCoin and TrustToken in a press release today, September 2024.
The basis of these charges were the unregistered and scam sales of investment contracts, involving the stablecoin, TUSD.
TUSD was issued by TrueCoin, whereas TrustToken was behind the purported lending protocol called TrueFi.
According to the SEC’s complaint, filed in the Northern District of California, TrueCoin and TrustToken sold investment contracts without proper registration from November 2020 to April 2023.
They pushed TUSD as a reliable stablecoin, assuring investors it was fully backed by U.S. dollars. But the SEC found that much of the supposed reserves were actually tied up in a high-risk offshore investment fund. This was not disclosed to investors.
Risky investments and false claims
The SEC alleges that, as early as March 2022, after TrueCoin sold its TUSD operations to an offshore entity, that entity, along with TrueCoin, placed over half a billion dollars of TUSD reserves into this speculative fund.
Instead of being a stable investment, the funds were exposed to plenty risk. Despite knowing about the situation, TrueCoin and TrustToken continued to assure investors that TUSD was backed one-to-one by U.S. dollars.
By Fall 2022, TrueCoin and TrustToken were aware of redemption problems at the offshore fund. Even then, they did not come clean.
They kept marketing TUSD as fully backed, and the SEC claims that by September 2024, 99% of the reserves are still tied up in this speculative investment fund.
This has left investors with a false sense of security. Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets Cyber Unit, said:
“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment.”
He added that this case is a clear example of why proper registration is important since investors continue to lack the critical information they need to make sound decisions.
Without admitting or denying the charges, TrueCoin and TrustToken have agreed to settle the case. They will enter final judgments to prevent further violations of federal securities laws.
Both companies are required to pay civil penalties of $163,766 each. On top of that, TrueCoin has agreed to pay disgorgement—essentially returning ill-gotten gains—of $340,930, along with prejudgment interest of $31,538.
Still though, these settlements still need court approval to become final.
Additional reporting by Noor Bazmi
