The US Securities and Exchange Commission (SEC) recently reached a settlement with TrueCoin and TrustToken, the entities behind the TrueUSD stablecoin, resulting in a penalty of $700,000. The official statement highlighted that the affiliated entities misrepresented the stability of the TrueUSD token, leading to investor fraud.
The Settlement
According to the complaint filed in the U.S. District Court for the Northern District of California, TrueCoin and TrustToken were involved in the unregistered offer and sale of investment contracts related to the TUSD crypto asset. They also engaged in profit-making ventures with TrueUSD from November 2020 to April 2023, without proper registration with the SEC.
Jorge G. Tenreiro, Acting Chief of the SEC's crypto unit, emphasized the significance of registration to safeguard investors from undisclosed risks. He stated, "TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment."
SEC's Stance on TrueUSD
The SEC referred to TrueUSD as a 'purported stablecoin,' highlighting the false marketing practices that portrayed the investment as secure and reliable. The regulators flagged the misrepresentation of TrueUSD's safety, shedding light on the risks associated with investing in the asset.
Furthermore, the complaint revealed that a significant portion of the assets backing TrueUSD were invested in a speculative offshore fund, contrary to the claims made by TrueCoin and TrustToken. Despite knowledge of redemption issues with the fund, the entities continued to mislead investors by falsely asserting that TUSD was fully backed by U.S. dollars.
As of September 2024, approximately 99% of the reserves supporting TUSD were tied up in the speculative fund, indicating a deviation from the claimed one-to-one backing with U.S. dollars. In light of these allegations, both TrueCoin and TrustToken have chosen to settle the SEC's charges by agreeing to pay civil penalties and disgorgement fees.
Repercussions and Market Response
While TrueCoin and TrustToken neither admitted nor denied the SEC's allegations, they have consented to pay civil penalties totaling $163,766 each. Additionally, TrueCoin will disgorge $340,930 in funds, along with a prejudgment interest of $31,538. Following these developments, the TrueUSD stablecoin, with a market cap of $495 million, experienced a minor downturn but has since recovered.
Currently, TrueUSD is trading at $0.99, showcasing resilience despite the regulatory scrutiny. The market response to this settlement underscores the importance of transparency and compliance in the crypto industry, as regulators aim to protect investors from fraudulent practices.
