TrueUSD Slapped with SEC Fraud Charges, Coughs Up $700K Fine
Stablecoin's Misrepresentation Sparks Market Concerns
TrueCoin and TrustToken, the companies behind the TrueUSD (TUSD) stablecoin, faced charges from the U.S. Securities and Exchange Commission (SEC) on September 24, 2024. The SEC accused them of misleading investors regarding TUSD's backing and engaging in the unregistered sale of investment contracts. These charges point to deeper issues within the stablecoin market, highlighting the potential pitfalls of investments tied to speculative assets.
The SEC's complaint reveals that TrueCoin and TrustToken promoted TUSD as fully backed by U.S. dollars or their equivalent. However, from November 2020 to April 2023, they invested a significant portion of TUSD's assets in a risky offshore investment fund. By March 2022, over $500 million—more than half of TUSD’s reserves—was channeled into this speculative fund.
By September 2024, a staggering 99% of TUSD's reserves were reportedly tied up in this offshore venture, contrary to the companies' claims of full dollar backing. Despite knowing about redemption issues with the fund since the fall of 2022, TrueCoin and TrustToken continued to market TUSD as a one-to-one dollar-backed stablecoin, as per the SEC’s allegations.
Both companies agreed to settle the SEC’s charges without admitting or denying the allegations. The settlement requires each to pay a civil penalty of $163,766, with TrueCoin also facing a disgorgement of $340,930 plus prejudgment interest of $31,538.
Jorge G. Tenreiro, Acting Chief of the SEC's crypto unit, condemned their actions, stating they prioritized profit over investor safety. He emphasized the importance of compliance with registration requirements, especially when promoting supposedly "stable" assets.
TUSD’s market reacted to these charges, with its market capitalization slumping to approximately $495 million. Its price fell slightly, trading around $0.99 at the time of the report. In response to the SEC's allegations, the DeFi sector began reassessing TUSD's stability.
Curve Finance, a key decentralized exchange known for stablecoin trading, is considering removing TUSD as collateral for its own stablecoin, crvUSD. A proposal on Curve Finance suggests setting the TUSD backing limit to zero, preventing its use as collateral. This move would minimize exposure to potentially unstable assets.
Additionally, Curve Finance is contemplating reducing the minting capacity of crvUSD with PayPal's PYUSD from $15 million to $5 million, diversifying its collateral sources and reducing risk.
Currently, users can mint up to $10 million worth of crvUSD using TUSD through Curve Finance’s 'PegKeeper' liquidity pool. However, given TUSD's questionable track record in peg stability and transparency, Curve's proposal aims to limit such exposure.
The SEC's charges against TUSD not only target its misrepresentation but also extend to profit opportunities associated with TrueFi, a decentralized lending platform connected to TrueCoin and TrustToken.
These regulatory actions against TUSD raise broader concerns about transparency and risk within the stablecoin market. The investment of stablecoin reserves in offshore speculative funds, coupled with misleading claims about their backing, poses a significant threat to investor confidence and the overall stability of the crypto market.
This article has been refined and enhanced by ChatGPT.
