Justin Sun sued: Spend $456 million to bail out TUSD, suing First Digital Trust for its reserves to be misappropriated?

Original source:CoinDesk

Original translation: Weilin, PANews

According to people familiar with the matter, court documents filed by the stablecoin issuer in Hong Kong showed that after nearly $500 million of reserve funds became liquid, Justin Sun took action to rescue Techteryx's TrueUSD stablecoin.

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

According to documents prepared by American law firm Cahill Gordon & Reindel, FDT has been instructed to invest stablecoin reserves in the Aria Commodity Finance Fund (Aria CFF) registered in the Cayman Islands. However, court documents say about $456 million was misappropriated to the unauthorized independent entity Aria Commodities DMCC, a court document.

Court documents show Matthew Brittain controls the Aria Commodities Finance Fund (Aria CFF) through Aria Capital Management Ltd, while Cecilia Brittain is the sole shareholder of the Dubai-based independent entity Aria Commodities DMCC.

However, the email signature from Matthew Brittan from Aria uses the Dubai address.

Court documents say Cecilia is Matthew's wife.

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

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

Hong Kong court documents also stated that First Digital CEO Vincent Chok was accused of remitting approximately $15.5 million in undisclosed commissions to an entity called "Glass Door" and additionally distributed approximately $15 million in unauthorized trade financing loans from FDT to Aria DMCC, which was later retroactively misclassified as legal fund investments. The plaintiff claimed that these actions constitute fraudulent misrepresentation and misappropriation of funds.

“The amounts transferred to Aria DMCC are blatant misappropriation and money laundering,” the indictment reads. “These operations were conducted without the knowledge, unauthorized and unauthorized.”

As of press time, the statements have not been heard in court.

Aria DMCC invests funds in projects around the world, which are described as relatively low-liquid assets such as manufacturing plants, mining operations, maritime vessels, port infrastructure, and renewable energy projects.

Court documents say that Techteryx was almost unable to recover funds when it tried to redeem its investment from Aria CFF between mid-2022 and early 2023, and the Aria-related entities were accused of failing to pay on time and failing to fulfill their redemption request.

Subsequently, Techteryx took over TUSD operations in July 2023, ending TrueCoin's participation. TrueCoin has continued to be responsible for TUSD's daily operations as a transitional arrangement after the sale in December 2020.

According to court documents, Justin Sun took action during this period to provide TUSD with emergency liquidity support, which was set as a loan.

The court documents also stated that although the stablecoin issuer has no funds available, the Techteryx team still quarantines 400 million TUSDs to ensure that retail users can still redeem them normally and that token holders will not be affected.

First Digital says it follows Techteryx's instructions

In response to CoinDesk's request for comment, First Digital's CEO Chok categorically denied any misconduct or involvement in any fraudulent scheme.

Chok told CoinDesk that First Digital Trust acts entirely as a trustee intermediary and executes transactions strictly in accordance with the instructions provided by Techteryx and its representatives. He stressed that the company is not responsible for independent evaluation or advice on these investment decisions.

"One of the main obstacles to ARIA's refusal to redeem funds early as required by Techteryx is their concerns about the anti-money laundering (AML) and understanding your customers (KYC) issues in the transaction between TrueCoin and Techteryx, especially about the true identity of the ultimate beneficial owner of Techteryx," Chok said in an email to CoinDesk. He added that he did not believe that Aria lacks liquidity.

“We have not yet had the opportunity to defend ourselves adequately,” Chok also said in the email, “As the law and arbitration proceedings advance, we will do our best to clarify these issues.”

Matthew Brittain of Aria Group told CoinDesk that he “completely denies Techteryx’s allegations against ARIA DMCC and any related entities”, adding that “many false allegations were filed in court proceedings.”

Brittain said Techteryx is fully aware of the relevant investment term commitments, which are stated in the contract agreed by the subscriber when investing in ARIA CFF and are clearly listed in the issuance specification.

Brittain also echoed Chok's concerns about the beneficial ownership of Techteryx, noting that the Wall Street Journal has reported on the topic.

Lieutenant General Lie Jinmei (original Li Jinmei) is listed as the ultimate beneficial owner of Techteryx. A Techteryx spokesman confirmed that the person was not Jennifer Yiyang, a former beneficial owner mentioned by the media, despite some confusion in media coverage.

“The subscriber has not addressed these issues,” Brittain added, referring to concerns about beneficial ownership.

Prime Trust Crash and SEC Reconciliation Makes the Situation Injured

Just as this happened, TUSD’s plight continued to intensify, manifested as the collapse of a bank partner and the pressure of scrutiny from U.S. regulators.

In mid-2023, Prime Trust, an independent crypto custodian based in Nevada and not directly associated with this case, was taken over by state regulators. TrueUSD has used the institution as a fiat currency channel partner.

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

Nevada court documents show Prime Trust defaulted on fiat obligations of about $85 million, while funds available were only about $3 million at that time.

This is not the last problem facing the stablecoin issuance party.

In September 2024, TrueCoin and TrustToken (who were the owner of the stablecoin before Techteryx took over) reached a settlement with the U.S. Securities and Exchange Commission (SEC) for being accused of falsely pursuing TrueUSD as “totally supported by the dollar” but actually secretly investing reserve funds in high-risk overseas funds.

Despite not admitting any misconduct and not disclosing details of overseas investments of companies related to Aria, TrueCoin and TrustToken agreed to pay a total of just over $500,000 in civil fines and return illegal proceeds to settle allegations of fraud and illegal securities issuance.

Aria's Brittain said that it was not a suitable decision to invest stablecoin reserve funds in Aria from the very beginning.

"ARIA CFF has never advertised its investment strategy as highly liquid, or reserves suitable for stablecoins," he wrote in an email.