SEC charges TrustToken and TrueCoin for defrauding investors

• SEC filed charges against TrueCoin and TrustToken over fraud and offering of unregistered investment contracts.
• TrueCoin issued the TrueUSD (TUSD) stablecoin, while TrustToken operated the TrueFi lending protocol.
• The regulator alleges stablecoin TUSD had 99% of its reserves invested in an offshore fund as of September 2024.

The Securities and Exchange Commission (SEC) has charged crypto companies TrueCoin and TrustToken for defrauding their investors in a stablecoin related investment program.

In a press release on Tuesday, September 24, 2024, the SEC said it charged the two companies for fraud and the offering of unregistered investment contracts on the stablecoin TrueUSD (TUSD). Many exchanges had integrated TUSD.

99% of TUSD reserves invested in speculative fund

Per the SEC, the TUSD issuer TrueCoin and lending protocol TrueFi operator TrustToken engaged in the offer of unregistered investment contracts on TUSD between Nov. 2020 and April 2023. The crypto companies offered what the regulator says were sales of TUSD packaged as “profit-making opportunities.”

These offers were falsely marketed as safe, with the TUSD issuer claiming that the stablecoin was 100% backed by US dollars.

However, as the charges filed at the US District Court for the Northern District of California allege, most of the assets backing the token were put into a speculative offshore investment fund. Instead, TrueCoin and TrustToken used these investments to earn returns for themselves.

“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment,” Jorge G. Tenreiro, acting chief of the SEC’s crypto assets & cyber unit, said.

SEC claims that by September 2024, the defendants had 99% of the alleged TUSD reserves in the speculative fund.

Both TrueCoin and TrustToken have reportedly agreed settlement with the SEC. This includes civil penalties amounting to $163,766 each. TUSD issuer TrueCoin will also pay $340,930 in disgorgement and $31,538 as prejudgment interest.