TrueCoin and TrustToken face $700K penalty in SEC settlement

The U.S. Securities and Exchange Commission (SEC) has charged crypto companies TrueCoin and TrustToken over their stablecoin TrueUSD (CRYPTO:TUSD), alleging fraudulent activity in the handling of its reserves.

According to the SEC, the firms invested 99% of the funds backing TUSD in a high-risk offshore investment fund.

This move violated securities laws, as the companies had not registered their offer and sale of securities.

TrueCoin and TrustToken launched TUSD in 2018, claiming the stablecoin was fully backed by U.S. dollars.

However, the SEC's complaint revealed that from November 2020 to April 2023, the funds were used for speculative investments instead of being reserved for stablecoin redemption.

By March 2022, over $500 million of TUSD's reserves had been invested offshore, and despite facing redemption issues later that year, the firms continued to mislead investors about the stablecoin’s backing.

The SEC’s case underscores the importance of transparency and proper registration in cryptocurrency ventures.

"This case is a prime example of why registration matters, as investors in these products continue to be deprived of the key information needed to make fully informed decisions," stated Jorge Tenreiro, acting chief of the SEC’s Crypto Assets Cyber Unit.

TrueCoin and TrustToken agreed to settle the charges by paying a collective $700,000 in penalties, including civil fines, disgorgement, and prejudgment interest.

Following the SEC's indictment, some platforms, including decentralised exchange Curve Finance, are considering removing TUSD as a collateral token.