The U.S. Securities and Exchange Commission (SEC) has charged TrueCoin LLC and TrustToken Inc., the companies behind TrueUSD, with misleading statements regarding the stablecoin’s reserves, according to PANews. The investigation revealed that a substantial portion of TrueUSD’s reserves had been invested in a high-risk offshore fund, contrary to assertions that the stablecoin was fully backed by U.S. dollars or equivalent assets. TrueUSD representatives have not yet responded to requests for comment.

Austin Campbell, head of a blockchain consulting firm, remarked on social media that the fundamental principle of transparency with investors has been violated. He stated, “The first rule is not to deceive your investors and users, and this clearly violates that rule. It’s ironic that TrueUSD would do this.” Campbell suggested that if the SEC’s allegations are substantiated, this situation could serve as a classic example of fraud, highlighting issues that are not exclusive to cryptocurrency but are exacerbated in this sector.

Further complicating matters, reports indicate that TrueUSD’s ownership structure is complex and opaque, with control being transferred to an offshore entity named Techteryx Ltd., and reserves moved to banks in the Bahamas. The company had previously explained that these moves were a response to challenging banking conditions for U.S. crypto firms. The collapse of banks like Silvergate, Silicon Valley Bank, and Signature Bank left many in the crypto industry scrambling for alternative banking solutions. While such maneuvers might raise red flags in other sectors, they were often accepted in the context of TrueUSD, largely due to the cryptocurrency ethos of being “trustless,” which suggests that users should not need to rely on third-party assurances. This belief has led many to view blockchain assets as superior to traditional financial systems, despite the emerging concerns.