Cred executives indicted on fraud charges following bankruptcy

abdelaziz Fathi

Three former executives of the now-bankrupt crypto lender Cred were indicted for conspiracy to commit wire fraud, wire fraud, and conducting financial transactions for illicit purposes.

Computer and amount of different cryptocoins on the wall

The indictment names Daniel Schatt, a co-founder and former CEO of Cred, Joseph Podulka, the former CFO, and James Alexander, the former chief capital officer. Schatt and Podulka were arrested and appeared before a San Francisco court on Thursday.

Cred filed for bankruptcy in November 2020, estimating liabilities between $100 million and $500 million, while possessing less than $100 million in assets. Cred cited “irregularities” in the handling of “specific corporate funds” as the cause of its collapse. The company’s reorganization plan was subsequently approved by a federal judge.

The lender was among the first crypto firms to declare bankruptcy, preceding the bankruptcies of Celsius and Voyager by around two years. Cred’s main product, “CredEarn,” offered high interest rates to investors but ultimately failed to deliver, leaving creditors with over $100 million in losses.

According to the Department of Justice (DOJ), the executives misled customers by promising high returns on crypto investments without disclosing that these were heavily dependent on a single company that made unsecured microloans to Chinese gamers.

The DOJ also stated that Cred’s lending practices were neither collateralized nor guaranteed, and that the firm’s hedging strategy did not adequately protect against market volatility.

The liquidation trust previously alleged that Cred had quietly loaned customer funds to Chinese micro-lender MoKredit, which shared a co-founder with Cred. MoKredit eventually defaulted on its debts, leaving Cred unable to pay back its customers.

The liquidation trust also claimed that the crypto exchange Uphold, where Schatt once served on the board, funneled users into CredEarn by marketing it as “safe,” “secured,” “insured,” and “fully hedged.” Although a lawsuit against Uphold was dismissed, a class action suit from Cred’s creditors is still ongoing. Uphold denied the allegations and stated that Schatt was involuntarily removed from its board.

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