SEC Charges Truecoin and Trusttoken Over Misleading TUSD Backing and Unregistered Sales

• In recent events, Truecoin and Trusttoken have come under scrutiny by the SEC for allegedly misrepresenting the backing of their stablecoin, TUSD.
• These companies were accused of engaging in unregistered sales of investment contracts and investing a significant portion of TUSD’s reserves in a high-risk offshore fund.
• The SEC pointed out that this action exposed investors to substantial undisclosed risks and maintained that the companies continued making misleading statements even when aware of redemption issues.

The recent SEC allegations against Truecoin and Trusttoken shed light on critical regulatory oversights in the cryptocurrency market, particularly surrounding the misrepresentation of stablecoin backing.

SEC Alleges Misrepresentation of TUSD Backing

The SEC’s complaint reveals that from November 2020 to April 2023, Truecoin and Trusttoken falsely marketed TUSD as a stablecoin entirely backed by U.S. dollars. However, a significant portion of the assets was invested in a speculative offshore fund. Despite being aware of redemption problems by Fall 2022, the companies continued to assert TUSD’s full backing, leading to substantial investor risk.

Unregistered Sales and Investment Contracts

During this period, the SEC claims that Truecoin and Trusttoken conducted unregistered sales tied to TUSD and the Truefi lending platform. These actions were reportedly carried out without proper disclosure, which violated federal securities laws. By September 2024, 99% of TUSD’s reserves were invested in the high-risk fund, a crucial detail omitted from the companies’ statements.

Implications for Investors

The SEC emphasized that these misrepresentations exposed investors to significant undisclosed risks. Essentially, investors were led to believe that their stablecoin holdings were fully backed by U.S. dollars, which was not the case. The resultant lack of transparency undermines investor trust and highlights the necessity for stringent compliance with regulatory requirements to protect investor interests.

Regulatory Consequences and the Path Forward

Without admitting or denying the charges, Truecoin and Trusttoken have agreed to settle with the SEC by paying fines and disgorgement, pending final judgments. This settlement underscores the critical need for cryptocurrency companies to adhere strictly to registration requirements, ensuring that investors are provided with accurate and comprehensive information.

TUSD Market Performance

In January 2024, TUSD lost its peg, dropping to $0.979 per coin, signaling instability. By March’s end, its supply significantly decreased from 1.1 billion to 612 million TUSD. As of now, TUSD’s market cap has further dwindled to $495 million, representing a minuscule 0.0215% of the total $2.3 trillion crypto market. The stablecoin’s 24-hour global trade volume reached approximately $19.39 million, about 0.02074% of the day’s $93.52 billion total trade volume.

Conclusion

The SEC’s scrutiny of Truecoin and Trusttoken serves as a crucial reminder of the importance of transparency and regulatory compliance in the cryptocurrency market. Investors depend on accurate information to make informed decisions, and any deviation from these standards can lead to significant financial risks. Moving forward, it is imperative for cryptocurrency companies to prioritize full disclosure and adherence to regulatory frameworks to safeguard investor interests and maintain market integrity.