TrueCoin, TrustToken penalized by SEC for unregistered sales of TUSD

The U.S. Securities and Exchange Commission (SEC) has settled with TrueCoin and TrustToken, the issuers of the TrueUSD (TUSD) stablecoin, over allegations of fraudulent and unregistered sales of investment contracts.

The SEC’s charges focus on misleading claims about the stability and collateralization of TUSD, raising concerns about the coin’s financial backing.

From November 2020 to April 2023, TrueCoin and TrustToken reportedly marketed TUSD as fully backed by U.S. dollars or equivalent assets.

However, the SEC’s investigation revealed that by late 2022, the majority of the funds supporting the stablecoin were invested in a risky overseas fund, casting doubts on the stablecoin’s reliability.

The SEC further claimed that by March 2022, TUSD operations had been sold to an offshore entity, and by September 2024, approximately 99% of its backing funds were locked in this foreign investment, heightening the risk for investors.

Despite knowing about potential redemption issues, the companies allegedly continued to promote the coin.

While TrueCoin and TrustToken neither admitted nor denied the allegations, they agreed to pay penalties, including $163,766 each in civil fines.

TrueCoin also consented to pay a disgorgement of $340,930, plus prejudgment interest of $31,538. Both companies are now prohibited from further violations of federal securities laws, pending court approval of the settlement.

Signs of instability in TUSD emerged before the SEC’s charges. The stablecoin lost its peg in June 2023, shortly after crypto custody service Prime Trust halted its operations following regulatory scrutiny.

The situation worsened in January when difficulties in posting real-time reserve attestations led to another depegging event, pointing toward potential under-collateralization.

Although Binance, a major crypto exchange, delisted several TUSD trading pairs in March, the coin has not been fully removed from the platform. TrueCoin and TrustToken have remained tight-lipped about the situation, and attempts to contact them for comments have been unsuccessful.