SEC Takes Action Against TrueCoin and TrustToken Amidst Congressional Scrutiny on Stablecoin Oversight

The Securities and Exchange Commission (SEC) has announced a settlement with TrueCoin LLC and TrustToken Inc. over fraudulent and unregistered sales of investment contracts related to TrueUSD (TUSD), Yesterday. This case has added fuel to the ongoing debate on the regulation of stablecoins, which was a focal point during a recent hearing led by Congresswoman Maxine Waters (D-CA), top Democrat on the House Financial Services Committee.

According to the SEC’s complaint, TrueCoin and TrustToken marketed TUSD as a fully-backed stablecoin, claiming it was supported by U.S. dollars or their equivalents. However, from November 2020 to April 2023, a significant portion of the assets supposedly backing TUSD were invested in a risky offshore fund. By March 2022, more than half a billion dollars of TUSD’s reserves had been diverted into this speculative investment, and by September 2024, a staggering 99% of the reserves were linked to the fund. Despite becoming aware of redemption issues, the companies continued to mislead investors about the stability of TUSD.

“TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment,” said Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit.

Without admitting or denying the allegations, TrueCoin and TrustToken have 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 has agreed to pay disgorgement of $340,930 with prejudgment interest of $31,538. The settlements are subject to court approval.

This development arrives at a critical time, as Congress continues to push for stricter oversight of stablecoins. At the hearing, Congresswoman Waters praised the SEC under Chair Gary Gensler for holding bad actors accountable, highlighting that the agency has brought 784 enforcement actions and recovered nearly $1 billion for harmed investors since 2021.

Waters also emphasized the need for stablecoins to be backed by safe and liquid reserves, such as short-term Treasury bills, calling for a grand bargain on stablecoin legislation. "Before the end of this year, I want us to strike a grand bargain on stablecoins and other long overdue bills," said Waters.

“We’ve been working on this since 2022, and I strongly believe we can reach a deal that prioritizes strong protections for our nation’s consumers,” Waters added. She underscored the importance of the Federal Reserve playing a dominant role in regulating stablecoins, aligning the U.S. with other countries that have established stablecoin frameworks.

As the SEC continues its investigation into TrueCoin and TrustToken, Congress remains under pressure to establish robust regulations for stablecoins and ensure investor protection in an evolving financial landscape.