SEC Charges TrueCoin and TrustToken With Fraudulent and Unregistered Sales of Investment Contracts

The settlement revolves around charges of fraudulent and unregistered sales of investment contracts.

The Securities and Exchange Commission (SEC) announced today that TrueCoin and TrustToken have agreed to settle charges that they engaged in the fraudulent and unregistered sale of investment contracts.

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of New York, TrueCoin and TrustToken offered and sold TrueUSD (TUSD), a purported stablecoin, to investors from November 2020 to April 2023. The complaint alleges that TrueCoin and TrustToken made material misrepresentations and omissions regarding the safety and backing of TrueUSD in order to attract investors and profit from the transactions.

The SEC's investigation found that TrueUSD was not fully backed by U.S. dollars or equivalent assets, as was claimed by TrueCoin and TrustToken. Instead, a substantial portion of the assets backing TUSD were invested in a speculative and risky offshore investment fund. This investment created a significant departure from the representations made to investors and raised serious concerns about the stability of TrueUSD.

For example, in March 2022, TrueCoin and an offshore entity invested over $500 million of TUSD's backing in the speculative fund. This investment was made despite the fund's use of leverage, lack of regulatory oversight, and limited transparency. The complaint also alleges that TrueCoin and TrustToken were aware of issues regarding redemption at the offshore fund, yet they continued to make false statements to investors.

The complaint further alleges that TrueCoin and TrustToken failed to register the offer and sale of TUSD with the SEC as required by federal law. The unregistered nature of the offering deprived investors of critical protections, including the right to receive periodic disclosures and the ability to participate in administrative proceedings before the SEC.

The SEC's complaint charges TrueCoin and TrustToken with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. The complaint also charges TrueCoin with violating Section 304(a) of Regulation S-T.

Without admitting or denying the SEC's allegations, TrueCoin and TrustToken have consented to the entry of final judgments that will permanently enjoin them from violating the charged provisions. The judgments will also order TrueCoin to pay disgorgement of $340,930, prejudgment interest of $31,538, and a civil penalty of $163,766. TrustToken will be ordered to pay a civil penalty of $163,766. The final judgments are subject to court approval.

The SEC's investigation was conducted by Michael P. Moran, Amy J. Longo, and David A. Reece of the Enforcement Division's Cyber Unit, with assistance from the Division of Corporation Finance. The SEC's litigation will be led by Amy J. Longo and supervised by Sanjay Wadhwa.

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