Hong Kong’s financial regulatory framework is under intense scrutiny following renewed accusations of a stablecoin custodian improperly transferring hundreds of millions of dollars in reserves to offshore entities.
Justin Sun, founder of the Tron blockchain network and an advisor to the TrueUSD stablecoin issuer, publicly accused First Digital Trust (FDT) and its CEO, Vincent Chok, of these unauthorized transfers. Sun alleged that fake documents were used to conceal the true flow of funds.
This marks a significant challenge for Hong Kong as it prepares to implement a new licensing regime for stablecoin issuers. The allegations highlight existing regulatory gaps in the oversight of trust companies within the financial hub.
During a press conference in Hong Kong, Sun claimed FDT exploited current trust regulations to divert reserves. He stated that funds were sent to overseas investment vehicles without authorization. Sun had previously identified a liquidity deficit of approximately $500 million in TUSD reserves, which he attributed to FDT directing funds to illiquid offshore assets.
The dispute traces back to 2020. At that time, Techteryx, the current owner of TrueUSD, appointed FDT to manage and custody the stablecoin’s reserves.
Court documents reviewed by CoinDesk indicate that the transfers are linked to entities associated with Aria Commodities DMCC. The central question is whether FDT was authorized to move the funds to these structures and if it knew they would be placed in long-term financial projects unsuitable for stablecoin backing.
Techteryx insists it only ordered reserves to be placed in the Aria Commodity Finance Fund, registered in the Cayman Islands. FDT, conversely, denies diverting funds without authorization, asserting it acted strictly under instructions from Techteryx or its representatives. Aria, for its part, denies any improper use of resources. It states that funds were allocated to trade and infrastructure financing, consistent with existing agreements.
A Dubai Digital Economy Court has issued a global freeze order on assets connected to the alleged diversion. The order does not assign blame but recognizes “serious matters to be judged,” according to the court’s ruling. These assets will remain frozen until a Hong Kong court determines the case’s outcome.
The situation has intensified pressure on local authorities to strengthen supervision of the trust industry. This case has become a critical test for Hong Kong’s regulatory framework, particularly as the city seeks to bolster investor protection and custody controls under its upcoming stablecoin licensing regime.
Hong Kong regulates non-bank trust companies under its Trust or Company Service Provider (TCSP) scheme. These entities fall under the Companies Registry, not traditional financial regulators. They are not subject to strict capital requirements or transactional monitoring seen in banks or securities intermediaries.
Legislator Johnny Ng, a proponent of Web3 development in Hong Kong, reported that his office has received multiple fraud allegations linked to trust companies. Ng emphasized the urgent need for stronger regulations to prevent similar abuses.
FDT maintains it adhered to Techteryx’s orders and does not directly control Aria’s assets. The company suggests that difficulty retrieving liquidity stems from Aria’s concerns about Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance related to Techteryx’s ownership, which purportedly slowed processes.
Sun claims to possess evidence proving that documents supposedly authorizing these instructions were falsified by FDT. FDT attempted to halt Sun’s most recent press conference via a court order, citing an ongoing defamation lawsuit against him. CEO Chok stated that FDT would not comment on “unproven accusations” at this time.