Three former executives of bankrupt virtual currency lender Cred were indicted on Thursday on charges of conspiracy to commit wire fraud, wire fraud and engaging in financial transactions for illegal purposes.
Cred co-founder and former CEO Daniel Shutt, former CFO Joseph Podulka, and former Chief Capital Officer James Alexander were indicted by the U.S. Attorney's Office for the Northern District of California. According to a press release issued Friday, Shutt and Podulka were arrested and appeared in court in San Francisco earlier in the day.
Cred filed for bankruptcy in November 2020, saying its debts at the time were estimated at between $100 million and $500 million, while its estimated assets were less than $100 million. At the time, the company blamed the failure on “irregularities” in the handling of “certain corporate funds.” The reorganization plan has since been approved by a federal judge, according to court records.
Cred was one of the first in a series of high-profile crypto lender bankruptcies, predating Celsius and Voyager's bankruptcies in 2022 by about two years.
Like these other failed companies, Cred, before filing for bankruptcy without sufficient funds to repay its creditors, accepted deposits from investors and established a financing program that offered market-leading interest rates. CredEarn” was offered. By the time Cred collapsed, depositors had kept more than $100 million worth of cryptocurrencies with Cred.
”[T]Defendants lured customers into investing by promising to return large amounts of yield on their virtual currency investments, but Defendants also stated that virtually all of the assets used to pay the yield were in the business of making unsecured microloans. did not disclose that it was produced by a single company. to gamers in China,” the U.S. Department of Justice said in a press release.
“Contrary to Defendants' guarantees, Cred engaged in unsecured and unguaranteed financing. Additionally, Cred's hedging strategy did not protect its investments from volatility,” the statement said. It's dark.
“Credo Clearing Trust and its experts have worked tirelessly to pursue recovery for creditors. We have spent significant time and effort cooperating with law enforcement. “We are grateful for the diligent efforts of the Department of Justice and the FBI,” said McDermott Will &・Attorneys Darren Asman and Joseph Evans of the Emery Law Firm said:
Cred filed for bankruptcy in 2020, placing the primary blame for the collapse on the failure of an external investment management company, Quantcoin. He had deposited 800 BTC (equivalent to about $10 million at the time) in Quantcoin. Credo Clearing Trust then claimed in a lawsuit that most of the lost customer funds were actually secretly lent to Chinese microfinance firm MoKredit, which ultimately failed to repay the debt.
MoKredit made most of its revenue from unsecured loans to Chinese gamers. The company's relationship with Cred, along with the fact that the two companies share a co-founder, was not properly disclosed to Cred's creditors, according to Friday's indictment.
Separately, Cred Liquidation Trust alleges that Cred attracted users to CredEarn through retail-oriented cryptocurrency exchange Uphold, which at one time counted Cred founder Dan Schatt on its board of directors. “Uphold coaxed thousands of retail customers into lending to the CredEarn program by falsely marketing cryptocurrencies as “safe,'' “secure,'' “insurance,'' and “fully hedged,'' the complaint states. ing.
CredEarn was originally planned to be called “UpholdEarn,” but the name was changed to avoid regulatory risk, according to a lawsuit that was dismissed earlier this year.
“Uphold knew that Cred was implementing highly risky hedging strategies and that there were regulatory risks associated with its crypto yield-earning programs,” the complaint says. “Rather than assume all these risks, Uphold and Shutt decided to move the risk away from Uphold by running [‘Earn’] Through Cred. ”
Uphold denies the allegations in the lawsuit and says Mr. Shutt was involuntarily removed from the board. Although the lawsuit from Cred's liquidating trust was dismissed (the dismissal was upheld on appeal), additional class action lawsuits against Uphold by Cred's creditors are still pending.
