The U.S. Securities and Exchange Commission (SEC) has revealed that almost all of the reserves backing the stablecoin TrueUSD (TUSD), developed by TrueCoin LLC and TrustToken Inc., were invested in a risky offshore fund. This revelation has led to charges of fraud and the sale of unregistered investment contracts against the companies. While both companies denied the allegations, they reached a settlement with the SEC to resolve the charges.
Were Altcoin Investors Misled?
The SEC claims that TrueCoin and TrustToken misled investors by asserting that TUSD was fully backed by U.S. dollars. Between November 2020 and April 2023, the companies allegedly sold TUSD through the TrueFi lending platform, promoting it as a safe, dollar-backed investment. However, the SEC’s investigation revealed that the reserves were, in fact, diverted into speculative, high-risk investments, putting investors’ funds at significant risk.
By March 2022, over $500 million allocated to support TUSD had been funneled into these risky funds. Investors believed they were participating in a secure venture, but instead, their funds were exposed to volatile and uncertain markets. Despite withdrawal issues arising in the fall of 2022, TrueCoin and TrustToken continued to mislead investors. As of September 2024, 99% of TUSD reserves remain invested in speculative funds, according to the SEC.
What Do the Penalties Mean?
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Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber Unit, emphasized that the companies risked investors’ capital for their own profit, making false claims about the stability of the investment. TrueCoin and TrustToken opted to settle the charges without admitting wrongdoing. They agreed to avoid future violations of securities laws.
As part of the settlement, TrueCoin will repay $340,930 in ill-gotten gains, along with $31,538 in interest. Both companies will also pay $163,766 in civil penalties, pending court approval.
This case is the latest example of the SEC’s increasing scrutiny of the cryptocurrency industry. In 2024 alone, the SEC collected a record $4.68 billion in fines. The regulator’s aggressive stance on the crypto market has drawn criticism, particularly from U.S. Congressman Patrick McHenry, who accused SEC Chairman Gary Gensler of overstepping his authority.
Ongoing Turmoil in the Crypto Industry
The TrueUSD case highlights the significant risks that remain in the cryptocurrency market. While stablecoins are typically seen as low-volatility, secure investments, cases like this expose how misrepresentation and risky investments can undermine investor confidence. The speculative nature of TUSD’s reserves illustrates how quickly investor funds can be put at risk.
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