TrustToken and TrueCoin, now operating under the rebranded name Archblock, have recently settled accusations from the U.S. Securities and Exchange Commission (SEC) regarding the misrepresentation of the backing of their stablecoin, TrueUSD (TUSD). The SEC’s statement, released on a Tuesday, highlighted that these California-based firms allegedly provided misleading information about TUSD’s reserves. Specifically, the companies claimed that TUSD was backed by one-to-one dollar reserves. However, it was later revealed that the issuer of TUSD was instead investing these reserves in a “speculative and risky offshore commodity fund,” raising significant concerns regarding the safety of investors’ funds.

As part of the settlement agreement, TrustToken and TrueCoin have collectively agreed to pay fines of $163,766 each. Additionally, TrueCoin is set to return nearly $400,000 in profits and interest, pending approval from a federal court. Both companies did not admit or deny wrongdoing in this settlement. Furthermore, they have committed to complying with relevant securities laws moving forward, as stipulated by the SEC.

Background on TrueUSD and Its Market Position

TrueCoin was the original issuer of TUSD, which subsequently came under the control of the offshore firm Techteryx. At present, TUSD boasts a market capitalization of nearly half a billion dollars, indicating its significant role in the cryptocurrency market as a stablecoin. TrustToken was also known for operating TrueFi, a lending protocol that allowed users to borrow and lend cryptocurrency.

The SEC’s allegations detail that both TrustToken and TrueCoin were involved in unregistered offers and sales of securities related to TUSD through the TrueFi platform. Despite transferring the stablecoin’s issuance to Techteryx, both firms remained significantly involved with TUSD. This close association raised questions about their accountability and obligations to investors.

Concerns Raised by SEC

The SEC’s complaint further asserts that TrueCoin contributed to the design and content of the TrustToken website, which facilitated the purchase of TUSD and investment in TrueFi. This connection suggests that both companies were aware of the risks involved yet continued to promote the stablecoin without adequately disclosing these risks to potential investors.

In 2022, both entities were reportedly aware of redemption issues that had arisen with TUSD, which greatly affected investor confidence. According to Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets & Cyber Unit, “TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment.” This statement underscores the importance of transparency and regulation in the cryptocurrency market, particularly concerning stablecoins that are often perceived as safer investment options.

The Importance of Regulatory Compliance

This case serves as a stark reminder of the necessity for companies in the cryptocurrency space to adhere to regulatory standards. The SEC emphasized that registration is crucial for preventing investors from being deprived of key information needed for making informed investment decisions. At one point, more than 13% of TUSD was reportedly allocated to profit-seeking opportunities on the TrueFi platform, further complicating the risk profile associated with the stablecoin.

Moreover, TUSD faced challenges earlier this year when it slipped from its typical $1 dollar peg, leading to increased scrutiny from regulators and investors alike. Such events highlight the volatility that can occur even within stablecoins, which are designed to maintain a stable value.

Conclusion

The settlement between TrustToken, TrueCoin, and the SEC reflects ongoing regulatory challenges in the evolving landscape of cryptocurrencies. As the market grows, it becomes increasingly vital for firms to ensure that they are operating transparently and in compliance with the law to protect investors and maintain the integrity of the financial system.