Ex-Cred Executives Admitted to $150 Million Crypto Fraud, Facing Wire Fraud Charges

Cred $150M of Crypto Fraud

In a significant legal development, two former executives of the bankrupt cryptocurrency lending platform Cred Inc. have pleaded guilty to conspiracy to commit wire fraud. The admissions came during a court hearing in California, shedding light on a scheme that allegedly defrauded customers of up to $150 million in cryptocurrency.

Cred, once a promising name in the crypto lending space, filed for Chapter 11 bankruptcy in November 2020. The company had marketed itself as a secure and innovative platform, offering high-yield returns on cryptocurrency deposits. However, investigations revealed a starkly different reality.

According to coverage of the proceedings from Law360, Cred's co-founder and former CEO Daniel Schatt, along with former CFO Joseph Podulka, misled customers and investors about the company's financial health and investment strategies. They falsely claimed that Cred's investments were "hedged" and "collateralized," and that the company had comprehensive insurance to safeguard customer assets. These assurances, prosecutors say, were entirely fabricated.

A critical aspect of Cred's business model involved its partnership with MoKredit, a platform founded by Cred's other co-founder, Lu Hua. MoKredit issued "unsecured microloans to Chinese gamers," per a press release from the Department of Justice (DOJ). Despite its high risk, MoKredit was Cred's main revenue source, generating "virtually all of the interest payments" for customer yields, according to an unsealed indictment on Schatt.

A separate indictment for Alexander was unsealed last year. Schatt also acknowledged that Cred fell victim to a "sham" that cost 800 BTC valued at over $9 million. This loss further compounded the company's financial woes, ultimately leading to its bankruptcy.

Legal Proceedings and Sentencing Recommendations

In a separate indictment unsealed last year, James Alexander, Cred's former Chief Capital Officer, was also charged with conspiracy and wire fraud. The DOJ alleges that Alexander played a key role in the fraudulent activities that led to Cred's downfall.

The charges against the defendants include conspiracy to commit wire fraud, multiple counts of wire fraud, and money laundering. In sum, the defendants are charged with the following crimes:

Prosecutors recommended sentences of up to 72 months for Schatt and 62 months for Podulka. A sentencing hearing is slated for August 26.