TrustToken and TrueCoin have been charged with fraud by the Securities and Exchange Commission (SEC). The news comes on the same day that SEC Chairman Gary Gensler is being grilled on Capitol Hill at a hearing of the House Financial Services Committee.
Without admitting or denying the allegations, TrueCoin and TrustToken have agreed to settle the charges by consenting to the entry of final judgments enjoining them from violating applicable provisions of the federal securities laws and to pay civil penalties of $163,766 each. TrueCoin has agreed to pay a disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are subject to court approval.
According to the SEC, TrueCoin LLC and TrustToken Inc. allegedly committed fraud with the unregistered sales of investment contracts involving TrueUSD (TUSD), a dollar based stablecoin.
The SEC claims that from November 2020 until April 2023, TrueCoin and TrustToken engaged in the unregistered offer and sale of investment contracts in the form of the crypto asset TUSD and profit-making opportunities with respect to TrueUSD on TrueFi.
The complaint further alleges that TrueCoin and TrustToken falsely marketed the investment opportunity as safe and trustworthy by claiming that TUSD was fully backed by U.S. dollars or their equivalent, when actually a portion of the assets backing TUSD had been invested in a speculative offshore investment fund to earn additional returns for the defendants.
The complaint also alleges that, by approximately March 2022, after the TUSD operations had been sold to an offshore entity, that entity and TrueCoin had invested more than half a billion dollars of the assets purportedly backing TUSD in the speculative fund, and that, by Fall 2022, TrueCoin and TrustToken became aware of redemption problems at the offshore fund but continued to make false statements to investors casting TUSD as backed one-for-one by U.S. dollars. The SEC alleges that as of this month 99% of reserves backing TUSD were invested in this speculative fund.
The SEC did not disclose the name or nature of the fund.
Jorge Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit, said the two entities sought to profit while exposing investors to substantial risk.
“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.”
