Litigation Releases (TrueCoin LLC and TrustToken, Inc.)

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26126 / September 25, 2024

Securities and Exchange Commission v. TrueCoin LLC and TrustToken, Inc.

, No. 3:24-cv-06684 (N.D. Cal. filed Sept. 24, 2024)

SEC Charges Crypto Companies TrustToken and TrueCoin With Defrauding Investors Regarding Stablecoin Investment Program

On September 24, 2024, the Securities and Exchange Commission announced settled charges against TrueCoin LLC and TrustToken Inc. for their fraudulent and unregistered sales of investment contracts involving TrueUSD ("TUSD"), a purported stablecoin.

According to the SEC's complaint, filed in U.S. District Court for the Northern District of California, TrueCoin was an issuer of TUSD and TrustToken was the developer and operator of TrueFi, a so-called lending protocol. The SEC's complaint alleges that from November 2020 until April 2023, TrueCoin and TrustToken engaged in the unregistered offer and sale of investment contracts in the form of the crypto asset TUSD and profit-making opportunities with respect to TrueUSD on TrueFi in violation of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"). The complaint further alleges that, in violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act, TrueCoin and TrustToken falsely marketed the investment opportunity as safe and trustworthy by claiming that TUSD was fully backed by U.S. dollars or their equivalent, when in fact a substantial portion of the assets purportedly backing TUSD had been invested in a speculative and risky offshore investment fund to earn additional returns for the defendants. The complaint alleges that, by approximately March 2022, after the TUSD operations had been sold to an offshore entity, that entity and TrueCoin had invested more than half a billion dollars of the assets purportedly backing TUSD in the speculative fund, and that, by Fall 2022, TrueCoin and TrustToken became aware of redemption problems at the offshore fund but continued to make false statements to investors casting TUSD as backed one-for-one by U.S. dollars. As alleged, by September 2024, 99% of the reserves backing TUSD were invested in the speculative fund.

Without admitting or denying the allegations, TrueCoin and TrustToken agreed to settle the SEC's charges by consenting to the entry of final judgments enjoining them from violating applicable provisions of the federal securities laws and to pay civil penalties of $163,766 each. TrueCoin agreed to pay disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are subject to court approval.

The SEC's investigation, which is ongoing, was conducted by Michael C. Baker, Michael Friedman, Pasha Salimi, and Bryan Hsueh. The matter was supervised by Michael Brennan, James Connor, and Jorge Tenreiro.