DOJ accuses former Cred executives of $783 million in fraud and money laundering

The US Department of Justice (DOJ) has announced charges against three former executives of the now-bankrupt crypto lending and investment company Cred, alleging their involvement in a scheme that led to customers losing crypto assets currently valued at more than $783 million are valued.

The suspects include Cred co-owner and former CEO Daniel Schatt, former CFO Joseph Podulka and former CCO James Alexander. Mark Mosley, Acting Special Agent in Charge of the IRS Criminal Investigation, described the defendants’ alleged activities at Cred as a “predatory, deceptive scheme.”

According to the indictments, the executives made numerous false statements no later than March 2020, claiming that Cred only engaged in collateralized and guaranteed lending, used hedged crypto investments, and had all-weather protection against volatility. Marketing materials also allegedly falsely advertised Cred as an approved lender with comprehensive insurance.

“The indictments demonstrate IRS Criminal Investigation’s investigative capabilities and our commitment to pursuing justice against financial criminals,” said Mark Mosley, Acting Special Agent in Charge of IRS Criminal Investigation.

Even after a sudden crash in 2020, executives reportedly portrayed Cred as solvent and promised that insurance would make customers healthy. Despite Cred’s general counsel admitting possible insolvency, executives are said to have sought new customer funds instead of disclosing the company’s true financial situation.

The executives also allegedly failed to disclose that almost all customer revenue was generated by a single company that provided microloans to Chinese gamers.

A federal grand jury charged each of the three individuals with various counts of conspiracy, wire fraud and money laundering, with combined maximum sentences of decades in prison and millions of dollars in fines.

Schatt and Podulka made their first court appearance on May 2 and are expected to return on May 8, while Alexander’s initial appearance is still pending. The case is pending in the Northern District of California.

“This prosecution demonstrates our determination to keep our markets free of fraudsters and safe for investors,” said U.S. Attorney Ismail Ramsey.

The DOJ’s announcement comes amid a string of recent cases targeting individuals in the cryptocurrency industry, including charges against Bitcoin proponent Roger Ver for alleged tax evasion and against the founders of privacy-based crypto wallet Samourai Wallet.

At the time of Cred’s bankruptcy filing on November 7, 2020, customers had suffered losses on cryptocurrency assets with a market value of $150 million, which has since increased to a potential maximum market value of more than $783 million.