On May 3, the US DOJ announced charges against former executives of Cred, a bankrupt crypto lending and investing firm.
Authorities alleged that the three accused individuals — Cred co-owner and former CEO Daniel Schatt, former CFO Joseph Podulka, and former CCO James Alexander — took part in a scheme that caused customers to lose crypto holdings now worth more than $783 million.
IRS Criminal Investigation Acting Special Agent in Charge Mark Mosley called the defendants’ suspected activities at Cred a “predatory, deceptive scheme.”
Allegedly false statements
Cred offered loans in US dollars to customers who deposited crypto as collateral. It secondarily promised yield or interest to customers who deposited their crypto.
However, no later than March 2020, the former executives allegedly made numerous false statements, claiming that Cred only engaged in collateralized and guaranteed lending, utilized hedged crypto investments, and had all-weather protection against volatility.
Marketing materials allegedly falsely advertised Cred was a licensed lender with comprehensive insurance. Furthermore, executives allegedly portrayed Cred as solvent after a 2020 flash crash and promised that insurance would make customers whole.
Even as Cred’s General Counsel admitted potential insolvency, executives allegedly sought new customer funds instead of revealing details of the firm’s financial situation.
The executives also allegedly failed to disclose that customer yields were almost entirely produced by a single company that made micro-loans to Chinese gamers.
Long maximum sentence
A federal grand jury charged each of the three individuals with varying counts of conspiracy, wire fraud, and money laundering. The various charges combined carry maximum sentences amounting to decades in prison plus millions of dollars in fines.
Schatt and Podulka made their first court appearance on May 2 and will return on May 8, including to enter a plea. Alexander’s first court appearance is pending.
The case is proceeding in the Northern District of California, which also announced a guilty plea from BTC-e operator Alexander Vinnik on the same day.
The DOJ has recently announced two other cases: one against Bitcoin proponent Roger Ver for alleged tax evasion in the Central District of California and one against the founders of the privacy-enabled crypto wallet Samourai Wallet in the Southern District of New York.
Posted In: Legal, Lending
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