The U.S. Securities and Exchange Commission (SEC) has reached a settlement with TrustToken and TrueCoin, companies involved with the stablecoin TrueUSD (TUSD). The SEC accused them of defrauding investors by misleading them about the stability and backing of TUSD.
As per the information provided by the SEC, by September 2024, out of $1.1 billion of the reserves supposed to back TUSD, 99% of it, or $1.05 billion, was invested in a rather risky fund. This was a major concern for the same reason because it cast doubt about the real status of TUSD as an asset that was claimed to be backed one-for-one by U.S. dollars. The SEC was able to point out that the defendants had marketed TUSD along with the ability to make money out of the investment, which formed part of the charges.
As a result of the settlement, both TrustToken and TrueCoin will be required to make a payment of $163,000. In turn, TrueCoin will be made to pay $340,000 in disgorgement, which refers to money generated from illegitimate businesses. The settlement agreement reached by both companies did not admit or deny the findings made by the SEC.
TUSD Faces Scrutiny After Falling Below $1 Peg Amid Stability Concerns
According to the complaint of the SEC, after providing TUSD operations to an offshore entity, both TrueCoin and this entity had invested more than $500 million of the backing of TUSD in this risky fund by March 2022. By the fall of 2022, they knew that it was impossible to redeem funds from this offshore entity but still deceived investors regarding TUSD’s stability.
TUSD also came under a lot of criticism when it briefly dipped below its $1 peg early this year, making many doubt its stability. The company behind TUSD said it is the first dollar-backed stablecoin to have real-time on-chain attestations. TUSD also used to rely heavily on off-chain liquidity, which Carlos Mercado, a data scientist, explained by stating that this had caused people to lose trust in TUSD and assured that its future would only be stable when enough backing is put in.
This case is a good example of why the market of cryptocurrencies should be clear about the value of stablecoins that attempt to act as a stable anchor in the market. There is growing concern about how these digital assets are managed and supported among investors.
