The United States Securities and Exchange Commission (SEC) announced Tuesday that it has charged TrueCoin LLC and TrustToken Inc.—a pair of companies behind the TrueUSD (TUSD) stablecoin—with fraudulent and unregistered sales of investment contracts.
The regulator called TrueUSD a "purported stablecoin," and charged the firms with false marketing claims related to the safety and backing of the dollar-pegged crypto asset. The companies have settled the charges without admitting or denying the allegations, and will collectively pay approximately $700,000 in penalties in the agreement.
“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, in a release. “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.”
TrueCoin and TrustToken, however, allegedly made false representations about TUSD’s backing. The companies allocated a “substantial portion” of TUSD’s backing to a “speculative and risky offshore investment fund to earn additional returns,” according to the SEC.
Both companies were allegedly aware of redemption issues concerning the offshore fund, but continued to pump TUSD’s backing into the investment opportunity. The fund is unnamed in the SEC’s complaint, but it purportedly invested in “trade finance” and other related ventures.
TrueCoin and TrustToken have always claimed that TUSD is backed one-for-one by U.S. dollars. And at one point this month, 99% of TUSD’s backing was allegedly in the offshore fund, according to the SEC.
Investors’ confidence in TUSD has been tested at times. Last June, TUSD’s value fell to 80 cents on Binance US after Prime Trust, a TUSD custodian, collapsed. TrueUSD’s Twitter (aka X) account responded by highlighting TUSD’s trading volume, which had surged, alongside the hashtag #TUSDKeepGrowing.
Last year, TUSD showed rising prominence in a crowded stablecoin field when Binance began offering zero-fee trading on pairs with TUSD. And the stablecoin’s market capitalization peaked around $3.8 billion last October, according to CoinGecko data.
Since then, TUSD’s market cap has fallen 86% to around $500 million. In July, Binance slimmed its zero-fee offering to only cover trades between the TUSD and the stablecoin Tether. As of this writing, $1 million worth of TUSD has traded hands on the exchanges WhiteBIT and LATOKEN over the past 24 hours, suggesting that the token still sees some use on various platforms.
While Federal Reserve officials have said that stablecoins should be regulated “in comparable ways” to bank deposits or money market mutual funds, the SEC has convinced a court before that one disgraced stablecoin was offered to investors as a security.
Last year, a federal judge in New York found that Terraform Labs’ TerrasUSD (UST) stablecoin was a security. Alongside its so-called sister coin LUNA, UST maintained its dollar peg through a series of trading incentives as an algorithmic stablecoin—until it completely fell apart.
Terraform Labs and its founder, Do Kwon, were later found liable for civil fraud charges. In that case, the SEC detailed secret arrangements that Terraform and Kwon had with third parties to buy UST on the open market after it once lost its peg, falsely restoring confidence in the asset.
At the same time, the SEC has purportedly walked back investigations into other stablecoin issuers. After receiving a so-called Wells notice last year, the New York-based stablecoin issuer Paxos said it was braced for an enforcement action over its Binance-branded BUSD stablecoin. In July, however, Paxos said that the SEC had dropped its investigation without legal action.
On TrueUSD’s website, investors have access to a “real-time reserve balance dashboard,” which stated Tuesday that TUSD is backed by $502 million in “escrowed collateral.” These attestations provided TUSD purchasers with nothing but false assurances, the SEC claimed.
Still, TrueUSD has moved to address “popular myths, misunderstandings, and downright falsehoods” surrounding stablecoins in other areas, such as a recent blog post. In that post, the company outlined the safety of stablecoins and their equivalent to cash as common myths.
“First, not all stablecoins are backed by fiat,” TrueUSD said. “Look at the stablecoin’s collateralization mechanism, the transparency of its reserves, the frequency of audits (if any!), [and] the credibility of its issuer.”
TureUSD did not immediately respond to a request for comment from Decrypt.
Editor's note: This story was updated after publication with additional information.
Edited by Andrew Hayward