sentenced <\/a>co-founder and former CEO Daniel Schatt to 52 months behind bars. Former CFO Joseph Podulka received a 36-month term.<\/p>\nCred executives pleaded guilty in May<\/h3>\n
Both defendants pleaded guilty in May to wire fraud conspiracy charges stemming from their deceptive business practices at the San Francisco-based cryptocurrency lending platform.<\/p>\n
The sentences cap a lengthy legal battle that began with Cred\u2019s November 2020 bankruptcy filing.<\/p>\n
Using current cryptocurrency valuations from August, the government estimates customer losses exceed $1 billion. This makes this one of the costliest crypto lending failures to date.<\/p>\n
<\/p>\n
Cred operated as a cryptocurrency financial services provider and offered dollar loans against crypto collateral and accepted customer deposits in exchange for promised yield payments.<\/p>\n
The company\u2019s business model relied heavily on partnerships with overseas entities that prosecutors say customers were largely unaware of.<\/p>\n
The fraud conspiracy took root in March 2020 when COVID-19 market turmoil triggered a Bitcoin price crash.<\/p>\n
This event exposed fatal flaws in Cred\u2019s risk management strategy and set the stage for the executives\u2019 subsequent deceptive conduct.<\/p>\n
COVID Crash Exposed Cred\u2019s Risky Business Model<\/h3>\n
The March 2020 crypto market crash badly affected Cred\u2019s operations. Within days of Bitcoin\u2019s (BTC) price collapse, the company learned from its hedging partner that it was financially underwater and needed to liquidate all trading positions immediately.<\/p>\n
The hedging relationship, which was meant to protect Cred from cryptocurrency price volatility, abruptly ended. This left the company with no protection against future market swings and exposed customers to risks they weren\u2019t informed about.<\/p>\n
Compounding these problems, Cred discovered that a Chinese company it relied on for generating customer yields could not repay tens of millions of dollars. Instead of disclosing these mounting financial problems, Schatt and Podulka actively misled customers about the company\u2019s health.<\/p>\n
During a public \u201cAsk Management Anything\u201d session on March 18, 2020, Schatt assured customers that Cred was \u201coperating normally\u201d despite being aware of the severe financial distress.<\/p>\n
Both executives will also serve three years of supervised release and pay a fine of $25,000.<\/p>\n
<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"
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