Two former senior leaders of the collapsed crypto lender Cred have admitted to wire fraud in a California federal court. Ex-CEO Daniel Schatt and ex-CFO Joseph Podulka entered guilty pleas as part of agreements with prosecutors.
U.S. District Judge William Alsup approved the deals and set their sentencing for August 26. Each man faces up to 20 years behind bars and substantial fines if the court imposes the maximum penalties.
Charges and Admissions
Under the terms of their plea, Schatt and Podulka acknowledged they knowingly misled customers. They selectively shared positive information about Cred’s health while hiding troubling facts.
According to court filings, this deception was designed to persuade depositors to lend both U.S. dollars and various cryptocurrencies to the firm. Prosecutors pointed out that the executives faced 13 separate counts related to wire fraud and money laundering before resolving the case.
Scope of Customer Losses
When Cred went bankrupt, customers initially faced losses estimated at up to $150 million. By May 2024, the Department of Justice reported the company’s remaining crypto assets had grown in value to over $783 million on the market.
Despite this rebound, the defendants agreed their actions directly caused customer losses of between $65 million and $150 million.
These figures formed the basis for sentencing recommendations, with prosecutors suggesting as much as 72 months for Schatt and 62 months for Podulka.
Misleading Claims About Lending Practices
Federal authorities accused the pair of misrepresenting Cred’s core business practices. They claimed the company dealt only in secured loans backed by collateral, and that all crypto investments were hedged to limit risk.
In reality, a large share of Cred’s loan book was exposed to MoKredit, a Chinese firm offering unsecured microloans to online gamers. Customers were never told about this reliance on high-risk, short-term lending.
Role of MoKredit and Unsecured Loans
Prosecutors highlighted how MoKredit’s unsecured loan products left Cred dangerously exposed. Those loans carried little formal collateral and targeted a volatile market of borrowers in China.
By failing to disclose this arrangement, Schatt and Podulka deprived customers of a clear picture of where their funds were headed. The plea agreement notes that this willful omission was central to the fraud scheme.
Legal Consequences and Wider Impact
Wire fraud carries serious penalties, including up to $250,000 in fines per individual and $500,000 for businesses. In this case, both executives also face restitution orders to repay defrauded customers.
Beyond the courtroom, their convictions serve as a warning to other crypto firms. Regulators have stepped up enforcement in recent years, seeking to hold executives personally responsible for misleading or deceptive practices.
Bankruptcy Proceedings and Asset Recovery
Cred’s bankruptcy estate has worked to recover assets for creditors and harmed customers. The increase in crypto values provided some relief, but many users remain out of pocket.
The Department of Justice’s involvement signals that criminal charges can accompany civil and bankruptcy claims in major crypto collapses. This multifaceted approach aims both to punish wrongdoing and to maximise returns for victims.
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