SEC says investors were defrauded by 'stablecoin' offer

Two firms that were offering investors exposure to what they claimed was a stablecoin settled charges by the Securities and Exchanges Commission.

The agency says that TrueCoin LLC and TrustToken Inc. engaged in an unregistered offer and sale of investment contracts for TrueUSD (TUSD), a digital asset issued by TrueCoin, and profit-making claims related to TUSD on TrueFi which was developed and operated by TrueToken.

It’s alleged that the offer was marketed between November 2020 and April 2023 and presented as a safe investment fully backed by US dollars or equivalent.  However, the SEC says that “a substantial portion” of the assets that were supposedly backing TUSD were invested in a speculative and risky offshore fund.

Further, the allegation is that even after the TUSD operations had been sold to another entity, roughly by March 2022, around half a billion dollars of the assets purported to be backing TUSD had been invested in the speculative fund. The SEC says that 99% of reserves backing the digital asset were invested in the fund by September 2024.

By fall 2022, the firms are believed to have been aware of redemption issues faced by investors but maintained that TUSD was backed one-to-one by US currency.

The two firms have not admitted or denied the allegations, which have not be proven in court, but have agreed to settle the charges. This includes agreeing not to engage in activities that violate applicable provisions of federal securities laws and to pay civil penalties of $163,766 each.

TrueCoin has also agreed to pay disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are subject to court approval.

“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment,” said Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit. “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.”