Johnny Jiezhuang Wu, chairman of the Hong Kong Legislative Council Web3 and Digital Assets subcommittee, has announced that legislators are investigating allegations against stablecoin issuer First Digital Trust. In a post on X, Wu said regulators and lawmakers will take action on the issue.

Wu’s comments followed claims by Tron network founder Justin Sun that First Digital Trust (FDT), the issuer of FDUSD, has committed a $500 million trust fund and is insolvent. Sun disclosed this in a series of tweets on April 2, causing FDUSD to briefly depeg amidst concerns about its stability.

According to Sun, several people misunderstand the Hong Kong Trust licensing process and exploit the approval and risk management loopholes to commit fraud. Therefore, the city’s regulators and law enforcement agencies should investigate the issue because it could damage Hong Kong’s growing reputation as a crypto hub.

In his public response, Lawmaker Wu noted that he had already met with some complainants and was fully aware of the issue. One of the complainants he met with was Sun, who had met with several members of the Hong Kong Legislative Council.

However, Wu added that there is nothing to worry about because the rule of law would prevail as regulators would do everything to protect investors and citizens.

He said:

“Hong Kong has a legal basis and a healthy environment for protecting international investors and the Web3 industry. I urge international investors and tech practitioners not to worry about a single incident and to feel assured in continuing to invest and develop in Hong Kong.”

Meanwhile, the lawmaker added that several fraud cases using trust companies have been reported to his office and the Anti-Fraud Alliance this year. He noted that the most recent case might present an opportunity to address the issue and discuss ways to improve the regulatory framework to prevent abuse by bad actors.

First Digital denies allegations, plans to sue Sun

While Sun continues to call for an investigation and warn people about holding FDUSD, the stablecoin issuer has released its own response to the allegations, which denies all allegations of fraud and misappropriation of funds.

The one-page rejoinder posted on X claimed that FDT was only an intermediary that acted on the instructions of Techtryx and its authorized representatives without any obligation to evaluate or advise on those instructions. The company noted that Sun and Techteryx’s claims are only an attempt to shift blame and are completely false accusations.

It said:

“By falsely alleging our involvement in a conspiracy, Techtery and Justin Sun are attempting to deflect blame and evade their own obligations to properly manage the reserves as the stablecoin issuer.”

The firm further reiterated that its FDUSD is completely solvent and Sun’s claim is only a malicious attack on a competitor. It added that it is also seeking a legal opinion on whether to sue Sun for the attack on its reputation.

So far, the public is buying the FDT version of the story, with FDUSD now regaining its peg after a flash crash that saw the stablecoin depeg. For one, many people believe that Sun has an ulterior motive for fighting the stablecoin wars, and he is not doing it simply to protect Hong Kong and its users.

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