SEC Charges TrueCoin and TrustToken Over TrueUSD Stablecoin Fraud and Misrepresentation

• The United States Securities and Exchange Commission (SEC) has brought charges against TrueCoin LLC and TrustToken Inc. for fraudulent and unregistered sales of investment contracts related to the TrueUSD (TUSD) stablecoin.
• The SEC alleges that the two companies made false marketing claims concerning the safety and backing of the TUSD stablecoin.
• “TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks,” said Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit.

“The SEC has charged TrueCoin LLC and TrustToken Inc. with engaging in fraudulent practices related to their TrueUSD stablecoin, leading to significant penalties.”

SEC Accusations Against TrueUSD Stabilize Market Sentiments

The SEC has accused TrueCoin LLC and TrustToken Inc. of misleading investors through false claims about the stability and security of TUSD. According to the SEC, the companies allocated a significant portion of TUSD’s backing to a risky offshore investment fund, contrary to their public assertions of one-for-one backing by U.S. dollars. This act jeopardized investors’ interests and violated securities regulations.

Hidden Risks and Market Reactions

The SEC alleged that the companies knew about the redemption issues related to the offshore fund but continued to allocate TUSD’s backing to this speculative investment. At one point, 99% of TUSD’s backing was reportedly tied up in this fund. This information, kept from investors, resulted in substantial risk exposure. The market’s reaction to these controversies saw TUSD’s market capitalization plummet from a high of $3.8 billion last October to around $500 million presently. Binance’s decision to limit zero-fee trading pairs with TUSD further reflected the shaken confidence in the stablecoin.

Historical Context of Legal Actions Against Stablecoins

The SEC has a history of regulating stablecoins to align them with investor protection laws. For example, Terraform Labs’ TerraformUSD (UST) was earlier declared a security, resulting in legal consequences after its collapse. Similar scrutiny has been directed towards TrueUSD, with the SEC highlighting the discrepancies between the purported transparency of TrueUSD’s reserves and the actual speculative investments.

Investor Confidence and Regulatory Landscape

With the SEC intensifying its regulatory oversight, the scrutiny of stablecoins like TUSD is likely to increase. TrueUSD’s actions have raised questions about the veracity of its reserve claims and the broader implications for the stablecoin market. Federal Reserve officials advocate for stablecoins to be regulated akin to bank deposits or mutual funds, signaling a potential shift in the regulatory framework governing these digital assets.

Conclusion

The SEC’s charges against TrueCoin LLC and TrustToken Inc. underscore the critical importance of transparency and regulatory compliance in the cryptocurrency sector. As the industry continues to evolve, stringent oversight remains crucial to safeguard investor interests and maintain market integrity.