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Former Cred Executives Charged with Wire Fraud and Money Laundering

Former executives of cryptocurrency lender Cred face serious charges of wire fraud and money laundering following the company's 2020 bankruptcy. Learn more about the implications for the crypto lending industry.

Serious Allegations Surface Following Cred's Bankruptcy

Three former executives of the now-bankrupt cryptocurrency lender Cred are facing charges of wire fraud and money laundering, as announced by the United States Attorney’s Office for the Northern District of California. The charges come in the wake of the firm's bankruptcy declaration in November 2020, which has since sparked widespread concern and investigation.

Details of the Charges

The prosecution's statement on May 3 highlighted the gravity of the charges and their commitment to maintaining market integrity. Former CEO Daniel Schatt and CFO Joseph Podulka are facing 13 charges each, encompassing wire fraud and money laundering. CCO James Alexander has been charged with four counts in relation to similar allegations. Mark Mosley, Acting Special Agent in Charge at the IRS Criminal Investigation, described the executives' actions as a "predatory, deceptive scheme," accusing them of defrauding victims of hundreds of millions of dollars in cryptocurrency.

The three executives maximum sentence per count, if convicted. Source: United States Attorney's Office for Northern District of California

Alleged Misleading Practices and Bankruptcy Fallout

According to prosecutors, the executives misled customers about Cred’s lending and investment practices, falsely claiming that the firm engaged only in "collateralized or guaranteed lending" and that its cryptocurrency investments were "hedged." These assurances were meant to suggest a robust strategy to shield against market volatility, yet it was alleged that the reality diverged significantly, involving unsecured lending practices.

Schatt and Podulka made their initial court appearance on May 2 and are scheduled to return to court to enter their pleas on May 8. The date for Alexander’s initial court appearance has yet to be set, adding another layer of complexity to the unfolding legal drama. These charges are unfolding alongside other high-profile cryptocurrency lending controversies, including the upcoming sentencing of Alex Mashinsky, former CEO of another crypto lender, scheduled for September 2024.

Broader Impact on the Crypto Lending Industry

The case against the former Cred executives underscores ongoing issues within the cryptocurrency lending industry, which has seen multiple firms such as Genesis encounter severe financial distress leading to bankruptcy. On a related note, Genesis recently made headlines for liquidating approximately 36 million GBTC shares to generate $2.1 billion in Bitcoin as part of their efforts to settle debts with creditors.