Former Cred Executives Sentenced to 88 Months in Prison Following $140 Million Collapse

Sentencing of Cred Executives

• Prison Terms: Two former executives of the now-defunct crypto lender Cred LLC, co-founder and ex-CEO Daniel Schatt and former CFO Joseph Podulka, have been sentenced to a total of 88 months in federal prison for their involvement in a wire fraud conspiracy.
• Customer Impact: The conspiracy resulted in over 6,000 customers suffering losses exceeding $140 million, with current estimates suggesting total customer losses could surpass $1 billion based on August 2023 cryptocurrency valuations.

Background of the Fraud

• Bankruptcy and Legal Proceedings: Cred filed for bankruptcy in November 2020, marking the beginning of a protracted legal battle. Both executives pleaded guilty to wire fraud conspiracy charges in May 2023.
• Deceptive Practices: The executives misled customers about the company's financial health during a public session in March 2020, despite being aware of significant financial distress following the COVID-19 market crash.

Business Model and Risk Management Failures

• Operational Strategy: Cred operated as a cryptocurrency financial services provider, offering dollar loans against crypto collateral and accepting deposits with promised yields. The business heavily relied on partnerships with overseas entities, which many customers were unaware of.
• Market Crash Consequences: The March 2020 crash in Bitcoin prices exposed critical flaws in Cred's risk management strategy. The company lost its hedging partner, which was supposed to protect against market volatility, leaving customers vulnerable to risks that were not disclosed.

Additional Penalties

• Supervised Release and Fines: In addition to their prison sentences, both Schatt and Podulka will serve three years of supervised release and are required to pay a fine of $25,000 each.