TrustToken, TrueCoin settle with SEC over TUSD allegations

The SEC claims the reserves backing TUSD were being held in a “speculative fund”

September 24, 2024 01:56 pm

SEC Chairman Gary Gensler | Third Way Think Tank/"CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler" (CC license)

The Securities and Exchange Commission announced a settlement with TrustToken and TrueCoin for defrauding investors regarding TrueUSD.

As part of the settlement, the two will pay $163,000 each, with TrueCoin paying a disgorgement of $340,000. Neither confirmed nor denied the SEC’s findings.

“The complaint alleges that, by approximately March 2022, after the TUSD operations had been sold to an offshore entity, that entity and TrueCoin had invested more than half a billion dollars of the assets purportedly backing TUSD in the speculative fund, and that, by Fall 2022, TrueCoin and TrustToken became aware of redemption problems at the offshore fund but continued to make false statements to investors casting TUSD as backed one-for-one by US dollars,” the SEC’s press release said.

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“As alleged, by September 2024, 99% of the reserves backing TUSD were invested in the speculative fund.”

The complaint filed by the SEC alleged that the defendants “offered and sold TUSD together with profit-making opportunities.”

The SEC, in its filing, said that the investors invested in a common enterprise — one of the prong’s of the Howey test — which would back up an alleged claim that TUSD fell under the SEC’s securities definition.

In January of this year, the stability of TUSD was called into question after the stablecoin depegged, dipping below a dollar. It claimed to be the “first” dollar-backed stablecoin to have “live on-chain attestations.”

Carlos Mercado, a data scientist at Flipside Crypto, told Blockworks at the time: “I don’t know how TrueUSD was structured, but clearly off-chain liquidity reliance caused a breakdown in people’s trust of the token. In the long term, if sufficient backing is there somewhere, it will re-peg at a lower market cap.”

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