Former Cred Executives Indicted on Wire Fraud and Money Laundering Charges


Key Takeaways

According to the indictment, Cred engaged in lending that was neither collateralized nor guaranteed

Former CEO Daniel Schatt and CFO Joseph Podulka face 13 charges of wire fraud and money laundering, while Chief Commercial Officer James Alexander is charged with four counts.

Three former executives of bankrupt crypto lender Cred Daniel Schatt, Joseph Podulka, and James Alexander have been charged by a federal grand jury with wire fraud conspiracy and money laundering. The alleged scheme is said to have caused losses potentially exceeding $780 million.

“This prosecution demonstrates our determination to keep our markets free of fraudsters and safe for investors,” stated the United States Attorney’s Office for the Northern District of California in a May 3 statement.

Former CEO Daniel Schatt and CFO Joseph Podulka face 13 charges of wire fraud and money laundering, while Chief Commercial Officer James Alexander is charged with four counts. Mark Mosley, criminal investigation acting special agent in charge at the U.S. Internal Revenue Service, described the scheme as “a predatory, deceptive scheme defrauding potential victims of hundreds of millions of dollars of cryptocurrency at market value.”

Cred, which offered a lending program called “CredEarn,” filed for bankruptcy in November 2020, prompting concerns from users about the safety of their funds. Prosecutors allege that the executives misled customers about Cred’s lending and investment practices. The firm had attracted over $100 million worth of crypto deposits before its collapse.

According to the U.S. Department of Justice , the defendants misrepresented Cred’s lending practices, claiming to engage only in collateralized or guaranteed lending. However, they allegedly failed to disclose that the assets to pay the yield were generated by a single company making unsecured micro-loans to Chinese gamers.

In its 2020 bankruptcy filing, Cred pointed fingers at an outside investment manager, Quantcoin, for its downfall, having entrusted them with 800 BTC worth about $10 million at the time. However,later, Cred Liquidation Trust claimed in a lawsuit that a big chunk of the lost customer funds had quietly gone to the Chinese micro-lender MoKredit, which couldn’t repay its debts.

According to the Department of Justice, MoKredit’s main income came from giving unsecured loans to Chinese gamers. The fact that MoKredit and Cred shared a co-founder, along with their close ties, wasn’t properly disclosed to Cred’s creditors.

Reportedly, Cred’s dealings with MoKredit were entirely in stablecoin, while Cred’s debts to its CredEarn customers were in crypto, leaving the exchange exposed to crypto price increases. When Cred filed for Chapter 11 bankruptcy in 2020, it listed estimated assets of $50 million to $100 million and liabilities of $100 million to $500 million.

Schatt and Podulka appeared in court on May 2 and are scheduled to enter a plea on May 8. Alexander’s initial court date has not yet been set.

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