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TrustToken and TrueCoin Settle with SEC
The entities behind TUSD are in hot water over alleged mischaracterizations of the stablecoin's backing.
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TrustToken and TrueCoin just announced a settlement with the SEC that will require each to pay $163,766 in penalties to the agency. TrueCoin also agreed to pay $340,930 in disgorgement.
What’s the Scoop?
- Unregistered Securities: From November 2020 until April 2023, the SEC alleges that TrueCoin LLC and TrustToken Inc. – the original issuers of TUSD – offered their stablecoins as an unregistered investment contract by promoting TUSD profit opportunities through associated TrueFi lending markets, a blockchain protocol which exerted managerial control on commingled user funds to produce profit.
- False Backing: While TUSD was represented as being “1:1” backed by U.S. dollars, the SEC’s complaint alleges that a substantial portion of the stablecoin’s collateral backing was invested in an “illiquid and risky Commodity Fund.” The Fund’s prospectus states that shareholders should be prepared to lose most or all of their investment, and as of March 27, 2023, approximately 24% of TUSD reserves were deployed with the unnamed Commodity Fund.
- Ongoing Investigation: Today’s SEC settlement only pertains to TrueCoin and TrustToken, who sold TUSD ownership interests to a Justin Sun affiliated “Offshore TUSD Entity” in December 2020. The SEC notes that its investigation into this matter is ongoing and that as of September 2024, more than 99% of TUSD collateral had been invested into the risky Commodity Fund.
Bankless Take:
Widespread suspicion of potential TUSD reserve misappropriation has received strong confirmation with the unconfirmed allegations contained in the SEC’s settlement agreement. Although TUSD remains pegged, the significant percentage of reserves alleged to be held with a speculative commodity fund raises serious concerns and warrants an urgent reassessment of the stablecoin's risk profile.
