TrustToken and TrueCoin, the creators of the TrueUSD (TUSD) stablecoin, last week reached a settlement with the US Securities and Exchange Commission (SEC) regarding accusations of fraudulent and unregistered sales of investment contracts.

The companies have agreed to pay a total of $700,000 in penalties and disgorgement without admitting or denying the SEC’s allegations.

In an exclusive statement to CryptoSlate from TrustToken and TrueCoin,

"TrustToken and TrueCoin have reached an agreement with the US Securities and Exchange Commission to settle an investigation into TrueUSD and TrueFi. This agreement involves neither admitting nor denying the allegations.

While we were prepared to defend our position, we ultimately chose to avoid the lengthy and distracting process of litigation. This decision allows us to focus on the exciting business opportunities ahead.”

The SEC’s complaint, filed in the US District Court for the Northern District of California, claimed that from November 2020 to April 2023, TrueCoin and TrustToken offered and sold TUSD as investment contracts through their TrueFi lending protocol without registering them. The regulator asserted that the companies misrepresented TUSD as being fully backed by US dollars or equivalents, while a significant portion of the assets were invested in a risky offshore fund.

According to the SEC, by March 2022, over half a billion dollars worth of TUSD-backing assets were invested in the speculative fund. The complaint further alleged that by September 2024, 99% of the reserves supporting TUSD were invested in this fund, exposing investors to substantial, undisclosed risks.

Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets & Cyber Unit, highlighted the significance of registration in safeguarding investors. “This case demonstrates why registration is crucial, as investors in these products continue to be deprived of the essential information necessary for making fully informed decisions,” Tenreiro stated .

As part of the agreement, TrueCoin and TrustToken each agreed to pay civil penalties of $163,766. In addition, TrueCoin will pay $340,930 in disgorgement and $31,538 in prejudgment interest. Both companies have consented to injunctions that prevent them from violating federal securities laws in the future.

The settlement comes amid increased regulatory scrutiny of the cryptocurrency sector. In 2024, the SEC reportedly collected a record $4.68 billion in fines from the cryptocurrency sector, up from $3.9 billion in 2023.

Following the announcement of the settlement, TrueUSD experienced a slight dip in its value, with its market capitalization reaching nearly $494 million at the time of the report. It has since climbed to $495 million . The peg recovered to over $0.999 on Sept. 27 but has recently dropped to $0.98 over the past 24 hours. However, this current level is within the range observed over the past six months.