Sun Yuchen sues: Spent $456 million to rescue TUSD, suing First Digital Trust for misappropriating reserves for investment?

Source: CoinDesk

Compilation: Weilin, PANews

According to informed sources, court documents submitted by the stablecoin issuer in Hong Kong show that after nearly $500 million in reserve funds became illiquid, Justin Sun stepped in to rescue the TrueUSD stablecoin under Techteryx.

After acquiring TrueUSD from TrueCoin in December 2020, Techteryx appointed the Hong Kong-based trustee First Digital Trust (FDT) to manage its stablecoin reserves.

According to documents prepared by the U.S. law firm Cahill Gordon & Reindel, FDT was instructed to invest the stablecoin reserves in the Aria Commodity Finance Fund (Aria CFF), registered in the Cayman Islands. However, the court documents state that approximately $456 million was improperly diverted to an unauthorized independent entity, Aria Commodities DMCC, located in Dubai.

The court documents reveal that Matthew Brittain controls the Aria Commodity Finance Fund (Aria CFF) through Aria Capital Management Ltd, while Cecilia Brittain is the sole shareholder of the independently operated entity Aria Commodities DMCC in Dubai.

However, the email signature of Matthew Brittain from Aria uses a Dubai address.

The court documents state that Cecilia is Matthew's wife.

According to an email from Matthew Brittain sent to CoinDesk, ARIA DMCC is engaged in trade financing, asset development, and commodity trading, while ARIA CFF provides financing services to commodity traders, including ARIA DMCC and other third parties.

An audit report issued by Moore CPA Limited shows that as of November 2024, FDT managed $501 million in TrueUSD reserves.

The Hong Kong court documents also indicate that First Digital CEO Vincent Chok is accused of transferring approximately $15.5 million in undisclosed commissions to an entity called "Glass Door" and additionally disbursing approximately $15 million in unauthorized trade financing loans from FDT to Aria DMCC, which were later retrospectively misclassified as legitimate fund investments. The plaintiffs claim these actions constitute fraudulent misrepresentation and misappropriation of funds.

"The funds sent to Aria DMCC are blatant misappropriation and money laundering," the lawsuit states, "These operations were conducted without the plaintiffs' knowledge, authorization, or approval."

As of the time of publication, these statements have not yet been heard in court.

Aria DMCC invests funds in various global projects, which it describes as relatively illiquid assets, such as manufacturing plants, mining operations, shipping vessels, port infrastructure, and renewable energy projects.

The court documents state that when Techteryx attempted to redeem its investment from Aria CFF between mid-2022 and early 2023, it was nearly unable to recover its funds, with Aria-related entities accused of failing to make timely payments and not fulfilling redemption requests.

Subsequently, Techteryx fully took over the operation of TUSD in July 2023, terminating TrueCoin's involvement. TrueCoin had continued to handle the daily operations of TUSD as a transitional arrangement after the sale in December 2020.

According to court documents, Justin Sun intervened during this period to provide emergency liquidity support for TUSD, which was set up as a loan.

The court documents also state that although the stablecoin issuer had no funds available, the Techteryx team still isolated 400 million TUSD to ensure that retail users could continue to redeem normally, without affecting token holders.

First Digital Claims It Followed Techteryx's Instructions

In response to CoinDesk's request for comment, First Digital CEO Chok firmly denied any wrongdoing or involvement in any fraudulent schemes.

Chok told CoinDesk that First Digital Trust acted solely as a trustee intermediary, executing transactions strictly according to the instructions provided by Techteryx and its representatives. He emphasized that the company is not responsible for independently assessing or advising on these investment decisions.

Chok stated in an email to CoinDesk, "To our knowledge, one of the main obstacles ARIA faced in refusing to redeem funds early at Techteryx's request was their concerns about anti-money laundering (AML) and know your customer (KYC) issues related to the transactions between TrueCoin and Techteryx, particularly regarding the true identity of Techteryx's ultimate beneficial owners." He added that he believes none of the parties involved in this case consider Aria to be illiquid.

"We have not yet had the opportunity to fully defend ourselves," Chok also stated in the email, "As legal and arbitration proceedings progress, we will do our utmost to clarify these issues."

Matthew Brittain of the Aria Group told CoinDesk that he "completely denies the allegations against ARIA DMCC and any related entities by Techteryx," adding that "many false allegations have been made in the court proceedings."

Brittain stated that Techteryx was fully aware of the relevant investment term commitments, which were outlined in the contracts agreed upon by subscribers when investing in ARIA CFF and clearly listed in the offering memorandum.

Brittain also echoed Chok's concerns about Techteryx's beneficial ownership, noting that The Wall Street Journal had reported on this topic.

The Hong Kong court summons lists Li Jinmei as the ultimate beneficial owner of Techteryx. A spokesperson for Techteryx confirmed that this individual is not the former beneficial owner Jennifer Yiyang mentioned in the media, although some reports have caused confusion.

"The subscriber has not resolved these issues," Brittain added, referring to the concerns regarding beneficial ownership.

Prime Trust Collapse and SEC Settlement Compound the Situation

At the same time, the predicament of TUSD has continued to worsen, marked by the collapse of a banking partner and scrutiny from U.S. regulators.

In mid-2023, Prime Trust, an independent crypto custodian based in Nevada and not directly related to this case, was taken over by state regulators. TrueUSD had used this institution as a fiat on-ramp partner.

State regulators accused Prime Trust of improperly using customer funds to meet withdrawal requests, raising serious concerns about its financial stability.

Court documents in Nevada show that Prime Trust owed approximately $85 million in fiat obligations, while available funds were only about $3 million.

This was not the last challenge faced by the stablecoin issuer.

In September 2024, TrueCoin and TrustToken (the previous owner of the stablecoin before Techteryx took over) reached a settlement with the U.S. Securities and Exchange Commission (SEC) after being accused of falsely advertising TrueUSD as "fully backed by U.S. dollars," while secretly investing reserve funds in high-risk overseas funds.

Although they did not admit to any wrongdoing and did not disclose details of overseas investments related to Aria, TrueCoin and TrustToken agreed to pay a civil penalty of just over $500,000 and return illegal gains to settle allegations of fraud and illegal securities issuance.

Brittain from Aria stated that investing stablecoin reserve funds in Aria was not a suitable decision from the beginning.

He wrote in an email, "ARIA CFF has never marketed its investment strategy as highly liquid or suitable for stablecoin reserves."