TL;DR
- The SEC settled fraud charges with TrueCoin and TrustToken regarding TrueUSD.
- The stablecoin was not fully backed by U.S. dollars as advertised.
- Companies agreed to pay penalties without admitting wrongdoing.
The U.S. Securities and Exchange Commission (SEC) has settled fraud charges against TrueCoin and TrustToken, the companies behind the TrueUSD stablecoin, after an investigation revealed misleading claims about the coin’s backing. While the firms marketed TrueUSD as fully backed by U.S. dollars, the SEC found that a significant portion of the reserves was actually invested in a high-risk offshore fund.
The SEC’s complaint, filed in the District Court for Northern California, alleged that the companies sold unregistered investment contracts tied to TrueUSD between November 2020 and April 2023. These contracts were offered through a lending protocol known as TrueFi, which promised investors potential profits. Despite the promotional claims, TrueUSD was not fully collateralized by the U.S. dollar as advertised.
TrueCoin and TrustToken did not admit or deny the allegations but agreed to settle by paying civil penalties of $163,766 each. In addition, the companies will pay $340,930 in disgorgement with prejudgment interest. The settlement is pending approval by the court.
The Stability of TrueUSD is Under Scrutiny
The SEC’s investigation revealed that by September 2024, despite the companies being aware of potential redemption issues, 99% of TrueUSD’s reserves were still held in foreign investments. This raised further concerns about the stability of the stablecoin and the transparency of its operations. Additionally, market confidence in TrueUSD has significantly declined. With its circulating supply dropping from over $4 billion at its peak to less than $500 million.
By March 2022, ownership of TrueUSD had been transferred to an offshore entity named Techteryx. This transition occurred amid worsening banking conditions for cryptocurrency firms in the U.S.. Particularly after the collapse of multiple financial institutions that serviced the crypto sector.
