Justin Sun says he 'welcomes' legal action from First Digital over stablecoin dispute

Tron founder Justin Sun said that he welcomes any legal action from First Digital Trust (FDT) , as the dispute surrounding TrueUSD stablecoin has yet to find a resolution.

"I welcome any legal process that brings more facts into the open," Sun told The Block in a written statement on Tuesday. "If that means taking it to court or continuing to shine a light through public disclosures, I will do both."

The dispute between Sun and FDT stems from Sun's claims that the Hong Kong firm misappropriated $456 million in TUSD stablecoin reserves, designated to back the token's peg.  

Sun, an advisor to TUSD operator Techteryx, claimed that between 2023 and 2024, FDT improperly directed the $456 million to Dubai-based firm Aria Commodities DMCC, instead of Cayman Islands-registered fund Aria CFF. Coindesk reported last week, citing court documents, that Aria Commodities DMCC's owner Cecilia Brittain is wife to Aria CFF CEO Matthew Brittain. 

In an attempt to prevent TUSD from collapsing, Sun gave Techteryx a $500 million loan, while publicly blaming FDT for stealing the TUSD reserve funds. Sun also claimed that FDT is "effectively" insolvent and unable to redeem client funds.

Following Sun's initial accusations, FDT and Chok responded with a list of counterclaims, denying all allegations and announcing that it would push legal action against Sun.

Relationship with TrueUSD

FDT first accused Sun of pushing the whole narrative in a "smear campaign" to hurt a competing stablecoin issuer.

"We have not yet had the opportunity to defend ourselves and instead of letting the TUSD matter be dealt with in court, Justin has instead resorted to a coordinated social media effort to try to damage FDUSD as a business competitor," the company said on X.

After Sun urged its users to secure their assets from the company, FDT's FDUSD briefly lost its dollar-peg, falling to as low as $0.91.

"Based on the forensic investigations conducted, substantial evidence suggested that there has been a global ponzi scheme of significant scale involving financial institutions in various jurisdictions, including FDT in Hong Kong," Sun told The Block, adding that the investigations were held by "external professionals," though they were unnamed in the statement.

The Tron founder also addressed speculation that he had a financial stake in TUSD beyond his role as advisor, which is the reason behind his $500 million loan to Techteryx.

"My decision to come to the rescue of TUSD by extending a loan didn’t come easy, given the potential hit over $500m to me as the creditor," Sun said in the statement. "It’s the right thing to do to protect the public token holders who would otherwise be facing severe losses. It is also in the best interest of the web-3 industry to prevent any contagion effect."

Insolvency dispute

FDT also fought against Sun's claim that the company is "effectively" insolvent, saying in a statement that it is solvent and user funds remain fully redeemable. 

"Techteryx and Justin Sun's suggestion of FDT being insolvent is not only factually incorrect, but it is a malicious attempt to damage the reputation and market standing of FDT and stablecoin FDUSD," FDT said in a statement posted last week.

In response, Sun told The Block that FDT has been insolvent from the balance sheet perspective since 2023, where in the fiscal year of 2024, it had recorded net assets of -101 million Hong Kong dollars (-$13 million), citing financial reports filed to Hong Kong regulators.

FDT's latest financial statement, accessible via the Hong Kong company registry's e-portal, shows that the company had net liabilities of 100.9 million HKD as Sun suggested. However, this is as of June 30, 2024 and may not be reflective of the company's current position.

Not a solo job

Meanwhile, Sun also rebutted FDT's claim that it just acted as a middleman to direct the funds to Dubai, following instructions from Techteryx and its authorized representatives.

In the interview response, Sun claimed that FDT wasn't involved in the $456 million embezzlement alone. He claimed it was done by a number of TUSD service providers including FDT and TrueCoin , that colluded to "orchestrate a rug pull."

"Essentially, Techteryx was persuaded to invest in the Cayman Fund based on the strong endorsement of Truecoin, particularly Mr. Alex De Lorraine who made a series of misrepresentations regarding the fund," Sun said. De Lorraine is the CEO and director of Archblock INC, which owns TrueCoin.

Sun added that the fund transfers to Dubai were executed through an "intricate" set of transactions backed by false documentations forged to deceive Techteryx. He again blamed Vincent Chok, the CEO of FDT and its affiliate Legacy Trust, for approving the transfers while being aware of "clear legal violations."

"FDT is definitely not just a 'middleman' as it suggested," said Sun. He did not reveal further details or evidence as he said they are subject to active litigation. 

However, First Digital posted screenshots on X on Tuesday of its custody agreement, which states that it "will take no view on the efficacy or soundness of any investment decisions made by the Client.”

The Block has reached out to FDT for further comments.

Justice and Accountability

As he proclaimed in his public press conference in Hong Kong last week, Sun reiterated in his interview that the region's regulatory loophole that FDT allegedly exploited is the "key issue."

"It appears no financial regulators are taking oversight over Hong Kong trust institutions, which largely lack robust oversight and risk controls," Sun told The Block. "There needs to be tighter regulation and control by authorities about the movement of clients’ funds by the trust institutions."

As Sun called on Hong Kong regulators, local Web3 lawmaker Johnny Ng released a statement acknowledging that there have been multiple fraud reports this year involving trust companies, agreeing that the local law needs to be amended.

Amid the chaos, Sun posted a $50 million bounty for any insider or whistleblower to expose the alleged embezzlement by FDT.

"I believe there are individuals—especially insiders—who know exactly what happened," Sun told The Block. "The bounty is a way to encourage them to come forward, provide clarity, and help recover the stolen assets."

Sun said his ultimate endgame with the TUSD situation is "justice and accountability." 

"I will continue to speak out publicly," Sun said. "Injustice happens if everyone chooses to remain silent."