TrueCoin and TrustToken Settle SEC Fraud Charges

by Giorgi Kostiuk

2 years ago

Made with AI

SEC Charges
Violations and Misleading Statements
Consequences and Previous Cases

The U.S. Securities and Exchange Commission (SEC) announced today that TrueCoin LLC and TrustToken Inc. have agreed to settle charges of fraud and unregistered investment contract sales related to the TrueUSD (TUSD) stablecoin.

SEC Charges

TrueCoin is the issuer of TUSD, while TrustToken operates the lending protocol TrueFi, functioning within the cryptocurrency ecosystem. According to the complaint filed by the SEC in the U.S. District Court for the Northern District of California, from November 2020 to April 2023, TrueCoin and TrustToken engaged in the offering and sale of unregistered investment contracts in the form of TUSD crypto assets.

Violations and Misleading Statements

The SEC alleges that both companies wrongly marketed TUSD as a safe investment by claiming that the stablecoin was fully backed by U.S. dollars, while most of the assets backing TUSD were invested in risky speculative funds overseas. In March 2022, after selling TUSD operations to a foreign entity, TrueCoin and TrustToken invested more than half a billion dollars of the assets backing TUSD in these funds.

At the end of 2022, despite knowing about redemption issues in these funds, the companies continued to make misleading statements to investors, claiming that TUSD was backed 1:1 by U.S. dollars.

"TrueCoin and TrustToken sought to profit for themselves by exposing investors to significant risks through misrepresentations about the safety of the investment."Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit

Consequences and Previous Cases

Without admitting or denying the charges, TrueCoin and TrustToken agreed to settle the SEC charges by agreeing to a court order barring them from violating applicable federal securities laws. They also agreed to pay fines of $163,766 each.

Additionally, TrueCoin agreed to pay disgorgement of $340,930 and pretrial interest of $31,538. This settlement awaits court approval.

The case drew attention amid the SEC’s increasing focus on unregistered operations in the cryptocurrency sector. Previously, the SEC had filed similar charges against Rari Capital, a decentralized finance (DeFi) protocol, for fraud and unregistered broker activities.

The cases of TrueCoin and TrustToken, along with Rari Capital, highlight the SEC's growing scrutiny and strict enforcement actions regarding law violations involving crypto assets and decentralized finance.

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