Ex-Cred execs plead guilty to wire fraud over $150M crypto collapse

Two former executives of the bankrupt cryptocurrency lending platform Cred, CEO Daniel Schatt and CFO Joseph Podulka, have pleaded guilty to wire fraud. This plea deal, accepted by District Judge William Alsup, stems from their involvement in Cred’s collapse, resulting in over $150 million in customer losses. Sentencing is set for August 26th, with potential penalties of up to 20 years imprisonment and substantial fines.

The plea agreement reveals that Schatt and Podulka selectively presented positive information while concealing negative news, intentionally misleading customers to lend funds. Federal prosecutors suggest prison sentences of up to 72 months for Schatt and 62 months for Podulka. While Cred initially reported significant losses, the Department of Justice later valued recovered assets at over $783 million. The plea agreement acknowledges user losses in the range of $65 million to $150 million, directly attributable to the defendants’ actions.

James Alexander, Cred’s former chief commercial officer, also faces wire fraud and money laundering charges. Prosecutors allege that the executives misrepresented Cred’s lending and investment practices, concealing the platform’s heavy reliance on unsecured microloans from the Chinese firm MoKredit to Chinese gamers. They falsely claimed all crypto investments were hedged and that only collateralized lending was practiced.

The platform’s insolvency was exacerbated by a 40% Bitcoin price drop in March 2020, rendering Cred unable to meet margin calls. Despite this precarious situation, the executives continued to attract new customers while minimizing the inherent risks. Cred’s subsequent bankruptcy in November 2020 sparked widespread concern among users who publicly voiced their anxieties on social media platforms regarding the safety of their funds. This case underscores a broader trend of legal repercussions facing crypto founders. Alex Mashinsky of Celsius received a 12-year sentence for fraud, and Travis Ford of Wolf Capital pleaded guilty to wire fraud conspiracy charges. These events highlight the growing scrutiny of the cryptocurrency industry and its regulatory landscape.