The U.S. Securities and Exchange Commission (SEC) has taken action against TrustToken and TrueCoin, which are facing serious allegations related to a fraudulent investment scheme and the unregistered offering of securities in the form of stablecoins. Both companies are accused of unlawfully investing a significant portion of the reserves backing their stablecoin, TUSD, into a risky fund that later encountered financial difficulties.

SEC’s Charges Against TrustToken and TrueCoin

According to an SEC press release, the commission filed a complaint against both companies in the U.S. District Court for the Northern District of California. The complaint not only targeted their fraudulent actions but also their unregistered offering and sale of securities. As part of a settlement, TrueCoin and TrustToken were ordered to pay a fine of $700,000. This step is intended not only to punish the offenders but also to warn other players in the cryptocurrency sector against similar practices.

 TrustToken and TrueCoin Accused of Risky Investments

TrustToken, known as the developer of the TrueFi lending protocol, collaborated with TrueCoin to create the stablecoin TrueUSD (TUSD), which was launched in 2018. TUSD was promoted as a stablecoin fully backed by U.S. dollars and as the first stablecoin in the world to publish daily verification of its reserves by independent third-party institutions. However, the SEC's complaint reveals a starkly different reality.

 According to the SEC, a large portion of the reserves intended to back the value of TUSD was instead invested in a speculative offshore fund that was supposed to yield high returns. This fund, however, posed significant risks, which eventually led to financial problems and the fund's inability to fulfill its obligations.

 Problems with the Backing of Stablecoin TUSD

In March 2022, when TrustToken sold the operations related to TUSD to a foreign company, over $500 million from the reserves meant to support the stablecoin had already been invested in this risky offshore fund. Unfortunately, the fund encountered serious liquidity problems later that year. Nevertheless, TrueCoin and TrustToken continued to make statements assuring investors that TUSD was fully backed by U.S. dollars at a 1:1 ratio. This misleading portrayal was presented both to investors and the public.

 Settlement with the SEC

In September 2024, the SEC announced that TrustToken and TrueCoin had invested up to 99% of the reserves meant to support TUSD into the aforementioned risky fund. As a result, both companies opted to settle the charges with the SEC, agreeing to pay financial penalties, including civil fines, disgorgement (the return of unlawfully gained profits), and interest.

 Implications for the Cryptocurrency Market

The case involving these two companies serves as a warning to the entire cryptocurrency industry. As stated by Jorge Tenreiro, the acting head of the SEC’s Crypto Assets and Cyber Unit: "This case is a prime example of why registration matters. Investors need access to key information to make fully informed decisions." The lack of transparency and the hidden risky investments undermine the trust investors place in cryptocurrency products.

 Some crypto projects have already started to respond to the situation. For example, the decentralized exchange Curve Finance is considering removing TUSD from its list of collateral, a direct consequence of the SEC's charges against TrustToken and TrueCoin. This case could have far-reaching implications for other crypto companies and the stability of the market as a whole.

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