The US Securities and Exchange Commission (SEC) has reached a settlement with TrueCoin and TrustToken, the companies behind the TrueUSD ($TUSD) stablecoin.
The two companies agreed to pay $700,000 to settle claims that they misled investors about the stability of TrueUSD.
This settlement comes after the SEC accused the companies of making false claims about how the stablecoin was backed, putting investors at risk.
Misleading claims
The SEC had filed a complaint against TrueCoin and TrustToken in the US District Court for the Northern District of California.
According to the complaint, the companies engaged in unregistered sales of what were essentially investment contracts through their crypto asset, TrueUSD.
From November 2020 to April 2023, the companies promoted TrueUSD as a safe investment opportunity. They claimed that the stablecoin was fully backed by US dollars or equivalent assets.
This would mean that for every $TUSD issued, there was a corresponding US dollar held in reserve. However, the SEC found that these claims were misleading.
The Acting Chief of the SEC’s Crypto Assets and Cyber Unit, Jorge G. Tenreiro, stated that the companies sought to make profits at the expense of investors.
“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment”, said Tenreiro.
He also stressed the importance of registration, which helps protect investors from risky and unverified investment opportunities.
The SEC argued that TrueUSD was falsely marketed as a trustworthy and secure stablecoin. This is because, in reality, the funds backing $TUSD were not as safe as advertised.
Investments in risky offshore funds
The SEC’s complaint also revealed that a large portion of the assets that were supposed to back TrueUSD were invested in a speculative offshore fund.
By March 2022, over $500 million of the reserves meant to support TUSD were diverted to this risky fund.
The SEC highlighted this as a major issue, as the companies continued to promote $TUSD as fully backed by US dollars, despite knowing about the risky investments.
Even as problems with redemptions began to surface in late 2022, TrueCoin and TrustToken continued to mislead investors. Redemptions refer to the process by which investors can exchange their $TUSD for US dollars.
When difficulties with redemptions emerged, the companies were aware that the offshore investments were causing problems but continued to assure investors that everything was fine.
The SEC report also noted that by September 2024, nearly 99% of TrueUSD’s reserves were tied up in this speculative fund, meaning only a tiny portion of the reserves were actually held in US dollars or safer assets.
Despite these issues, the companies did not disclose the truth to investors and continued to claim that $TUSD was a stable, dollar-backed asset.
Settlement and market reaction
In response to these allegations, TrueCoin and TrustToken did not admit or deny the SEC’s findings. However, they agreed to settle the charges by paying $700,000.
This settlement includes civil penalties of $163,766 for each company, as well as additional payments from TrueCoin. TrueCoin will pay $340,930 in disgorgement, which is the repayment of ill-gotten gains, along with $31,538 in prejudgment interest.
Despite the controversy surrounding the settlement, the TrueUSD stablecoin has managed to maintain its market position. With a current market capitalisation of $495 million, the coin has recovered from a slight drop after news of the SEC’s actions became public.
At the time of writing, $TUSD is trading at $0.99, close to its intended value of $1.
This case is part of the SEC’s broader efforts to regulate the cryptocurrency industry. In 2024 alone, the SEC collected a record $4.68 billion in fines from companies involved in crypto-related violations.
SEC Chairman, Gary Gensler, has been facing criticism from lawmakers, particularly over the agency’s approach to regulating digital assets. At a congressional hearing, Committee Chairman, Patrick McHenry, accused the SEC of overreach, calling it a “rogue” regulator under Gensler’s leadership.
The SEC’s settlement with TrueCoin and TrustToken is just one example of the agency’s increasing scrutiny of the crypto market.
