Justin Sun demands reforms after pointing out irregularities in First Digital Trust

Source: CritpoTendencia Original Title: Justin Sun demands reforms after pointing out irregularities at First Digital Trust Original Link: The entrepreneur Justin Sun intensified his offensive against First Digital Trust (FDT), urging Hong Kong regulators to act immediately against what he describes as fraudulent management of reserves linked to stablecoins.

The accusations raise alarms about the oversight of fiduciary entities in Asia, while relevant funds remain frozen following a court ruling in Dubai.

Approximately $456 million in TUSD reserves were subject to alleged global fraud led by Matthew Brittain and associates through structures in Dubai and multiple offshore entities. The funds were moved globally through questionable structures.

Legal Clash Between Justin Sun and FDT

Sun claims that FDT diverted funds corresponding to stablecoin reserves -mainly associated with TrueUSD (TUSD)- to unauthorized investments through opaque structures in offshore jurisdictions. According to documents cited by the press, around $456 million would have been transferred to a fund in Dubai, leading a court to order the blocking of those assets.

Following these accusations, FDT responded with a defamation lawsuit against Sun, arguing that his statements lack evidence and seriously affect their reputation. The firm asserts that it fulfills its fiduciary duties and that the redemption processes remain operational.

The contrast between the complaints and the legal defense increases the uncertainty about the solidity of the reserves backing certain stablecoins and about the credibility of crypto custodians operating under traditional trust structures.

Hong Kong reconsiders its framework for crypto assets

Justin Sun's statements reveal, according to him, systemic regulatory gaps within the trust companies regime in Hong Kong.

In its position, the current regulation does not provide sufficient guarantees against possible fund misappropriations, therefore it requires an urgent review of the supervisory framework.

In response, local authorities and some legislators have acknowledged the need to update the rules applied to trusts linked to crypto assets. In fact, several investigations for alleged fraud - according to public statements - are currently underway.

If the reforms advance, audit, custody, disclosure, and governance standards could be redefined for companies managing digital assets in Hong Kong, with direct implications for the global stablecoin ecosystem and institutional custodians.

Emerging Risks for Crypto Custody

The escalation of the conflict between Justin Sun and FDT poses three key risks to the market. First, it questions the reliability of the reserves of stablecoins that rely on traditional custodians in jurisdictions with unclear or transitional regulatory frameworks.

Second, it emphasizes the need to raise levels of transparency and implement more rigorous external audits in entities that manage digital assets under fiduciary contracts.

And third, it opens the door to a potential regulatory tightening in Hong Kong, which could affect liquidity, issuance, and confidence in projects that directly depend on trust companies.

In this scenario, the case reinforces the importance of analyzing in detail the legal structure, the custodian, and the supervision mechanisms before allocating capital to projects based on stablecoins. Legal and reputational volatility ceases to be an abstract factor and becomes a critical variable in decision-making.