Tron founder Justin Sun’s attack on the solvency of the entity supporting the FDUSD stablecoin is drawing questions back to his own relationship with FDUSD rival TUSD.
On March 28, papers filed in the High Court of the Hong Kong Special Administrative Region’s Court of First Instance by Techteryx Ltd accused Vincent Chok and Yai Sukonthabhund of attempting to defraud Techteryx to the tune of over $500 million.
The Singapore-based Techteryx controls TrueUSD, the issuer of TUSD. Chok is CEO of the Hong Kong-based First Digital Trust (FDT), custodian of the fiat reserves backing both TUSD and FDUSD. Sukonthabhund is a partner and former CEO of Crossbridge Capital Asia and is currently a partner at Zurich-based asset manager Finaport.
Techteryx says it deposited hundreds of millions of dollars with FDT, only to discover that the funds weren’t invested in the responsible manner Techteryx expected. Worse, the suit accuses the defendants of having “siphoned off sums in excess of US$500 million from [TUSD’s] reserves, in a spider-web of investment fraud.”
Techteryx, which acquired TrueUSD in December 2020, alleges that TrueUSD’s previous owners engaged Hong Kong-based Legacy Trust to oversee its reserves. Legacy then engaged Crossbridge as its investment manager. When Techteryx acquired TrueUSD, its former owners advised Techteryx to appoint FDT to replace Legacy Trust and to appoint Finaport to replace Crossbridge.
Techteryx agreed and struck a deal with FDT, after which FDT struck a deal with Finaport to manage the TUSD reserves. FDT claimed to have invested $565 million in a Cayman Islands mutual fund. But Techteryx alleges that most of this cash went to a Dubai-based fund with a similar name that Techteryx claims “is not a genuine fund.” Techteryx further alleges that $456 million of the reserves were “not even paid to the Fund and never made it to the Fund.”
When Techteryx found itself in a liquidity crunch in August 2022, it claimed its efforts to redeem its assets from FDT were only partially successful. Meanwhile, the defendants were allegedly paying themselves “secret kickbacks” totaling tens of millions of dollars as “their reward and incentive for misappropriating” the $456 million.
The suit notes that the U.S. Securities and Exchange Commission (SEC) announced last September that it had reached a settlement with TrueCoin LLC and TrustToken Inc. “for their fraudulent and unregistered sales of investment contracts involving TrueUSD (TUSD), a purported stablecoin.” Techteryx says its suit against Chok/Sukonthabhund “relates partly” to the fraud detailed in the SEC settlement.
The SEC claimed the two companies “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 … by September 2024, 99% of the reserves backing TUSD were invested in the speculative fund.”
Here comes the Sun
The lawsuit claims Techteryx has “engaged liquidity solutions to reinforce the integrity of the TUSD stablecoin at significant cost and inconvenience.” CoinDesk reported that Sun “bailed out” Techteryx by stepping in with an emergency loan of unknown size—but presumed to be the full $456 million deficit—citing legal documents filed in support of the SEC case against TrueCoin/TrustToken.
Both Sun and TrueUSD have denied Sun’s ownership of TrueUSD. Sun has similarly been linked/not linked to Techteryx, the HTX (formerly Huobi), Poloniex exchanges and other notable crypto ventures. Regardless, Sun somehow felt compelled to open his wallet to preserve TUSD’s ability to survive this debacle.
In a statement to CoinDesk, Chok denied any wrongdoing and appeared eager to cast shade in Sun’s direction. Chok claimed that one of the main “blockers” for the delay in redemptions was the Dubai-based fund’s “[anti-money laundering/know your customer] concerns regarding the deal between TrueCoin and Techteryx and the true identity of the ultimate beneficial owner of Techteryx.”
Shots fired!
On April 2, Sun tweeted that FDT “is effectively insolvent and unable to fulfill client fund redemptions. I strongly recommend that users take immediate action to secure their assets.”
Sun urged Hong Kong authorities to “take swift action to address these issues and prevent further major losses. Hong Kong’s reputation as a global financial center is at stake, and similar financial fraud incidents must never happen again.”
A couple of hours later, Sun tweeted a reiteration of his claim re FDT’s insolvency, adding that “[a]s for what consequences its founder, Vincent Chok, will face for his fraudulent actions—that will be up to the justice system and regulators to decide.”
Cryptically, Sun then tweeted that he didn’t “recommend anyone overinterpreting my words, especially when it comes to my closest partners. I trust them—our trust has been built over the past decade through a long history of collaboration involving tens of billions of dollars. I firmly believe that this trust remains unwavering.”
Sun continued to go hard at FDT throughout the day, including his claim that FDT “is unable to fulfill client fund redemptions.” Sun urged Hong Kong authorities to “take decisive measures” to plug “loopholes” in trusts’ ability to “circumvent financial and banking regulations.” Sun said FDT “should never be allowed to have another chance to scam the public under the guise of a licensed institution, in Hong Kong or elsewhere.”
Hong Kong councilor Johnny Ng felt the need to tweet that he had “great confidence in Hong Kong’s rule of law and law enforcement agencies.” Should the allegations in the suit prove true, “the enforcement authorities will definitely take action to protect the rights and interests of citizens and international investors.”
Fallout and FUD
Reaction to Sun’s allegations was immediate, as FDUSD slipped its 1:1 peg with the dollar, briefly dipping to $0.91. While FDUSD quickly regained most of that ground, it was still sitting at around $0.99 as of Thursday afternoon.
FDT tweeted its rejection of Sun’s allegations, calling them “completely false.” The tweet added that FDT “is completely solvent. Every dollar backing $FDUSD is completely, secure, safe and accounted for with US backed T-Bills.” FDT provided a link to an ‘attestation report‘ by Tennessee-based Prescient Assurance citing the ISIN numbers of its T-bills.
FDT then went on the offensive, saying Sun was engaging in “a coordinated social media effort to try to damage FDUSD as a business competitor. FDT will pursue legal action to protect its rights and reputation.” Later in the day, FDT tweeted that “the first few redemptions after the recent FUD [fear, uncertainty and doubt] have been processed,” adding that the company “will continue to process all redemption requests promptly.”
Binance: nothing to see here, move along
FDUSD trades almost exclusively on the Binance exchange, with only Bitunix (2.3%) and Gate.io (1.5%) boasting more than a single percentage point of FDUSD trading volume.
FDUSD is notorious for trading at a multiple of its market cap on a daily basis, leading to suggestions of rampant wash trading intended to goose the price of prominent tokens, including BTC and ETH.
Following Sun’s allegations, Binance issued a statement citing the attestation report’s claim that FDT held $2.05 billion worth of T-bills and overnight fixed deposits as of March 1, exceeding the total circulating supply of FDUSD at the time. Binance added that it reviewed the latest report when it was released and had “conducted another round of checks just a few hours ago to reconfirm the accuracy of the data.”
Binance added that it “will conduct in-depth reviews of FDUSD’s reserves” ahead of the March attestation report, which is expected to be released within the next two weeks.
Conspicuously quiet throughout this episode was Binance founder Changpeng ‘CZ’ Zhao, who stepped down from an active role at Binance in late 2023 following his guilty plea and prison time for violating America’s anti-money laundering rules. When questioned about the brouhaha on X, CZ only said that he had “no idea. very hard to know as a 3rd party.”
CZ and Sun were once close, with Sun serving as CZ’s overeager Mini-Me, seemingly even more willing to cut regulatory corners than his mentor. This earned the occasional brushback pitch from CZ, even as CZ now contemplates following Sun’s lead and opening his wallet to buy favor with powerful politicians.
Tron can’t shake terror ties
This site was once threatened by Tron attorneys for our reporting of mainstream media coverage of the network’s popularity with terror groups. Since those reports, Tron’s efforts to rehabilitate its reputation have included last September’s launch of the T3 Financial Crime Unit (T3 FCU)—a partnership with Tether (issuer of USDT, the largest stablecoin by market cap) and blockchain analysts TRM Labs—aimed at combating blockchain-based illicit activities.
While T3 FCU has frozen some USDT-on-Tron wallets at the request of law enforcement agencies, knowing when you’re ‘winning’ at whack-a-mole is a difficult proposition. For instance, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) just announced the additions of multiple USDT-on-Tron wallets to its ‘specially designated nationals’ list based on their ties to Houthi rebels in Yemen.
The wallets in question are linked to weapons purchases from Russia. Treasury Secretary Scott Bessent said the Houthis “remain reliant” on the leader of this financial support network to “threaten the region through their destabilizing activities.” The Houthi-controlled wallets have been active since at least 2023, and nearly $1 billion was transited through them before OFAC slapped its scarlet letter on the digital addresses.
While Tether has proven eager to celebrate its cooperation with law enforcement, neither the company nor its CEO Paolo Ardoino has yet weighed in on the OFAC report. It’s also been crickets from TRM, Sun and Tron.
While TRM Labs assisted OFAC in identifying these wallets, a February TRM report indicated that Tron claimed a $26 billion share of the total $45 billion illicit crypto activity the analysts identified last year. Believe it or not, this is actually an improvement over 2023, during which Tron handled $32 billion in illicit volume.
Bad habits are hard to break. But hey, the longest journey begins with a single step.
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