Cred Executives Sentenced to 88 Months in Prison for Wire Fraud Conspiracy
Two former executives from defunct crypto lender Cred LLC have been sentenced to a combined 88 months in federal prison for their roles in a wire fraud conspiracy that left over 6,000 customers with more than $140 million in losses. The sentences were handed down by Senior U.S. District Judge William Alsup, who ordered co-founder and former CEO Daniel Schatt to serve 52 months behind bars, while former CFO Joseph Podulka received a 36-month term.
Background of the Conspiracy
Cred operated as a cryptocurrency financial services provider, offering dollar loans against crypto collateral and accepting customer deposits in exchange for promised yield payments. However, the company’s business model relied heavily on partnerships with overseas entities that prosecutors say customers were largely unaware of. The fraud conspiracy took root in March 2020 when COVID-19 market turmoil triggered a Bitcoin price crash, exposing fatal flaws in Cred’s risk management strategy and setting the stage for the executives’ subsequent deceptive conduct.
The March 2020 crypto market crash badly affected Cred’s operations, with the company learning from its hedging partner that it was financially underwater and needed to liquidate all trading positions immediately. The hedging relationship, which was meant to protect Cred from cryptocurrency price volatility, abruptly ended, leaving the company with no protection against future market swings and exposing customers to risks they weren’t informed about. Compounding these problems, Cred discovered that a Chinese company it relied on for generating customer yields could not repay tens of millions of dollars.
Executives’ Deceptive Conduct
Instead of disclosing these mounting financial problems, Schatt and Podulka actively misled customers about the company’s health. During a public “Ask Management Anything” session on March 18, 2020, Schatt assured customers that Cred was “operating normally” despite being aware of the severe financial distress. This deceptive conduct ultimately led to the company’s downfall, with Cred’s bankruptcy filing in November 2020 resulting in over $1 billion in losses for customers, based on current cryptocurrency valuations.
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. In addition to their prison terms, Schatt and Podulka will also serve three years of supervised release and pay a fine of $25,000. The sentences cap a lengthy legal battle that began with Cred’s bankruptcy filing and highlight the importance of transparency and accountability in the cryptocurrency industry.
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