During Operation Stardust, half of the Federation fleet gathered at Konpei Island was destroyed by the RX-78GP02A Gundam "Physalis". In order to cover up the incident, the Federation officially labelled the surviving fleet as MIA, and all survivors were separated from the main force. Dissatisfied with their treatment, these survivors reorganized into a terrorist organization known as True Federal.
The leader of the organization was Kanesada Tsurugi, the captain of BGST, and it was funded by Richard Grayson, chairman of the Europe chamber of commerce and Tsurugi's disciple. In order to bolster the organization's forces, Kanesada joined the Jupiter Energy Fleet with his son, Ittou Tsurugi, hearing that it has a higher Newtype birthrate. He also experimented on Ittou and transformed him into a Cyber Newtype. This knowledge later allowed him to transform many orphans into Cyber Newtypes.
However, when Kanesada went to Side 1 to garner support, Grayson arranged for his arrest. He then donned a mask and adopted the persona of Lord Sparta, taking over the organization and fooling everyone into thinking that he was Kanesada. Under Grayson, True Federal spread chaos in the Earth Sphere, allowing Grayson to profit from the endless wars.