Former Cred Executives Plead Guilty to Wire Fraud in $150 Million Crypto Collapse
By Stephen Katte
Two former executives of the now-defunct crypto lending platform, Cred, have pleaded guilty to wire fraud associated with the company’s significant financial downfall. Daniel Schatt, the former CEO, and Joseph Podulka, the ex-chief financial officer, admitted to misleading customers regarding the company’s financial state as part of a plea agreement reached with federal prosecutors.
The guilty pleas were formally entered on May 13 during a hearing at a California District Court presided over by District Judge William Alsup. In light of their admissions, Judge Alsup has set a sentencing hearing date for August 26. Under U.S. law, wire fraud can result in severe penalties, including up to 20 years in prison and fines amounting to $250,000 for individuals, or $500,000 for businesses.
Plea Agreement Details
According to reports from Law360, both Schatt and Podulka acknowledged in their plea agreement that they engaged in a deliberate pattern of presenting overly optimistic information to customers while simultaneously concealing grave negative indicators about the company’s finances. This strategy aimed to entice customers into lending both U.S. and digital currencies to Cred, which ultimately led to customer losses exceeding $150 million.
Federal prosecutors have indicated a potential sentence range of up to 72 months for Schatt and up to 62 months for Podulka, both of whom faced a total of 13 charges, including wire fraud and money laundering. Industry reports reveal that another former executive, James Alexander, the company’s chief commercial officer, is also facing similar charges.
The Collapse of Cred and Its Aftermath
Cred’s bankruptcy filing in November 2020 sent shockwaves through the cryptocurrency community, leaving many customers in financial turmoil. Initially, it was reported that users had incurred losses of at least $150 million. However, recent updates from the U.S. Department of Justice indicate that since the collapse, the assets related to Cred have appreciated significantly, now valued at over $783 million.
As part of their plea agreement, Schatt and Podulka conceded that their actions contributed to customer losses estimated between $65 million and $150 million. Prosecutors have asserted that the executives misled customers about the company’s lending practices and failed to disclose critical details regarding their reliance on the Chinese firm MoKredit, which provided unsecured microloans to clients in China.
Moreover, Cred faced scrutiny for asserting that it only engaged in collateralized lending and that its crypto investments were adequately hedged—claims prosecutors have labeled as false.
The collapse was precipitated by a dramatic decline in Bitcoin’s value, which dropped nearly 40% on March 11, 2020. Following this downturn, Cred struggled to meet margin calls, pushing the company towards insolvency while executives sought new customers without adequately communicating the risks involved.
Broader Implications in the Crypto Industry
The repercussions of Cred’s failure have reverberated across the cryptocurrency landscape. The situation mirrors a troubling trend as the crypto sector confronts increasing scrutiny and regulatory action against various founders and executives involved in fraudulent schemes. Notably, Alex Mashinsky, the founder of the bankrupt crypto lending platform Celsius, received a 12-year prison sentence for fraud earlier in May. Similarly, Travis Ford, co-founder of Wolf Capital, pleaded guilty to wire fraud conspiracy charges earlier this year, further emphasizing the urgent need for oversight in the evolving crypto market.
As the sentencing hearings for Schatt and Podulka approach, the industry continues to grapple with the consequences of the Cred collapse, highlighting the critical importance of transparency and ethical practices in the cryptocurrency space.
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