DOJ charges former Cred execs over $783M fraud and money laundering scheme
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The US Department of Justice (DOJ) has announced charges against three former executives of the now-bankrupt crypto lending and investing firm Cred, alleging their involvement in a scheme that led to customers losing crypto holdings currently valued at over $783 million.
The accused individuals include Cred co-owner and former CEO Daniel Schatt, former CFO Joseph Podulka, and former CCO James Alexander. IRS Criminal Investigation Acting Special Agent in Charge Mark Mosley described the defendants’ alleged activities at Cred as a “predatory, deceptive scheme.”
According to the indictments, the executives made numerous false statements starting no later than March 2020, claiming that Cred only engaged in collateralized and guaranteed lending, utilized hedged crypto investments, and had all-weather protection against volatility. Marketing materials also allegedly falsely advertised Cred as a licensed lender with comprehensive insurance.
“The indictments levied demonstrate the investigative capabilities of IRS Criminal Investigation and our commitment to pursuing justice against financial criminals,” said IRS Criminal Investigation Acting Special Agent in Charge Mark Mosley.
Even after a 2020 flash crash, the executives allegedly portrayed Cred as solvent and promised that insurance would make customers whole. Despite Cred’s General Counsel admitting potential insolvency, the executives allegedly sought new customer funds instead of disclosing the firm’s true financial situation.
The executives also allegedly failed to disclose that nearly all customer yields were generated by a single company making micro-loans to Chinese gamers.
A federal grand jury charged each of the three individuals with varying counts of conspiracy, wire fraud, and money laundering, with combined maximum sentences amounting to decades in prison and millions of dollars in fines.
Schatt and Podulka made their first court appearance on May 2 and are scheduled to return on May 8, while Alexander’s initial appearance is pending. The case is proceeding in the Northern District of California.
“This prosecution demonstrates our determination to keep our markets free of fraudsters and safe for investors,” said U.S. Attorney Ismail Ramsey.
The DOJ’s announcement comes amid a series of recent cases targeting individuals in the cryptocurrency industry, including charges against Bitcoin proponent Roger Ver for alleged tax evasion and against the founders of the privacy-enabled crypto wallet Samourai Wallet.
At the time of Cred’s bankruptcy filing on November 7, 2020, customers had suffered losses of cryptocurrency assets with a market value of $150 million, which has since risen to a potential maximum market value of over $783 million.
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Author: Vince Dioquino
