Justin Sun bailed out $500M stablecoin TUSD, report
Court filings in Hong Kong and reporting from CoinDesk have revealed that Techteryx, the firm behind TrueUSD, required a loan from Justin Sun after its reserves became stuck in First Digital Trust and it became effectively insolvent, unable to redeem its tokens.
This runs contrary to certain public claims by TrueUSD that during the period in question, it continued to claim that it was backed “1:1” by US dollars — even after it started having redemption issues with First Digital.
These claims relate to TrueUSD’s relationship with First Digital Trust, which was its primary asset manager.
TrueUSD trusted First Digital to manage its reserve, and First Digital Trust invested in trade finance on its behalf. TrueUSD has since alleged that it was unable to redeem those funds and that First Digital directed some assets to another firm, “Glass Door,” apparently without permission from Techteryx.
SEC case
This insolvency was also at the center of the Securities and Exchange Commission (SEC) case against TrueUSD, which clearly alleged that TrueUSD misrepresented its “1:1” backing.
TrueUSD agreed to settle this case, and in its current Hong Kong case, it notes that it “did not dispute the complaint.”
The SEC case also revealed publicly that TrueUSD’s problems were related to First Digital Trust and that the fund that First Digital marketed to TrueUSD was described in other documents as only suitable for those who could “bear the risk of losing most or all of their investment.”
Read more: What’s up with TrueUSD and the rest of TrustToken’s stablecoins?
Strangely, even after this settlement, a close review of TrueUSD’s attestations seems to suggest that TrueUSD remained invested in First Digital, likely related to the fact that it was unable to redeem these funds.
Even in today’s attestation, prepared by Moore Hong Kong, it is revealed that nearly all of the reserves, worth over $500 million, are still held at First Digital. The accounting firm further notes that those portions of the reserves are “reported at cost,” and that its “procedures do not include an examination over the fair market value of the investments.”
Even management’s notes to the report signed by Jennifer Jiang show that the assets that First Digital invested in are not “readily convertible to cash.” They also note that “Techteryx has already engaged alternative liquidity, separate from the reserves of USD denominated collateral.”
However, notably, the website homepage no longer claims “1:1” backing.
Hong Kong case
The Hong Kong suit echoes the need for alternative liquidity, noting that it “has engaged liquidity solutions to reinforce the integrity of the TUSD stablecoin.”
CoinDesk’s reporting suggests that this liquidity came from Sun and was structured as a loan.
This liquidity was necessary because First Digital would not or could not service the redemptions that TrueUSD requested, and the total damage from this is the entire value still invested with First Digital.
Read more: TrueUSD was hacked and issued fake tokens
The lawsuit also claims that “secret payments” were transferred to bank accounts in the name of Legacy Trust, another trust firm run by Chok that previously worked with TrueUSD and has a close relationship with First Digital Trust.
TrueUSD alleges that these payments were an “illicit kick-back” and claims that it only became aware of them last month.
It also makes a more exceptional claim, specifically that Chok claimed that First Digital Trust “was raising funds from other customers and would repay the plaintiff with such funds.” This is behavior that TrueUSD alleges is “akin to a ‘Ponzi’ scheme.”
Justin Sun’s role
Justin Sun has claimed that he does not own Techteryx or TrueUSD but has been identified as an “Asia Market Advisor” to TrueUSD.
He has also previously admitted that he is a “partner market maker” for TrueUSD.
This is important because Techteryx has claimed publicly that TrueUSD was not owned by Justin Sun.
Read more: TrueUSD bank FlowBank forced into bankruptcy
However, this has been previously cast into doubt by a pro se lawsuit filed by the former TrustLabs Chief Executive, Daniel Jaiyong An, who claimed that Sun, with the assistance of Can Sun, tried to acquire TrueUSD.
This new loan from Sun to Techteryx suggests that Sun may have more entwined business relationships with Techteryx than previously disclosed.
Currently, 80% of TUSD tokens on Ethereum are held in three addresses that received all their TUSD from Sun-advised HTX.
On Tron, nearly 90% of TUSD tokens are held in two addresses that received all their TUSD from Sun-advised HTX.
TrueUSD and First Digital did not respond to a request for comment before publication.
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