Former Execs of Bankrupt Crypto Lender Cred Plead Guilty to $150M Wire Fraud

Daniel Schatt and Joseph Podulka, former CEO and CFO of the now-bankrupt crypto lender Cred, have pleaded guilty to wire fraud linked to the company’s collapse. They entered their pleas on May 13 in a California federal court.

In response, District Judge William Alsup accepted the pleas and scheduled sentencing for August 26.

The Plea Deals

As part of their plea deal, Schatt and Podulka admitted they gave users only positive updates about Cred while hiding damaging information. Prosecutors say this tactic persuaded customers to hand over U.S. dollars and digital assets to the company.

When they pleaded guilty, the two faced 13 counts, including wire fraud and money laundering. Prosecutors have proposed sentences of up to 72 months for Schatt and 62 months for Podulka.

Meanwhile, wire fraud charges can lead to prison terms of up to 20 years and fines of up to $250,000 for individuals. Businesses involved in such offenses may face penalties as high as $500,000.

Cred’s Financial Troubles

Cred’s financial troubles began on March 11, 2020, when Bitcoin’s price dropped by 40%. Unable to meet margin calls, the company came close to collapse. Despite these significant challenges, prosecutors claim that the executives continued recruiting new customers while downplaying the risks involved.

In November 2020, the now-bankrupt crypto lender filed for bankruptcy, with customer losses estimated at as high as $150 million. However, by May 2024, the U.S. Department of Justice reported that the remaining assets had grown to over $783 million.

Authorities assert that Cred’s leadership misled customers about the company’s lending and investment strategies. Specifically, they failed to disclose that Cred’s operations heavily relied on MoKredit, a Chinese firm making unsecured microloans to gamers, often without collateral.

Furthermore, the executives falsely claimed that all loans were backed by collateral and that the company’s crypto investments were fully hedged, which prosecutors argue was untrue.

Other crypto founders, apart from the former executives of Cred, have also faced legal consequences this year. For example, Thomas Smith, the chief technology officer (CTO) of SafeMoon, pleaded guilty in February to charges related to a multimillion-dollar crypto fraud scheme.

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