Former Cred executives sentenced to 88 months in prison

• Cred left billions in losses with cryptocurrency loans
• Former CEO and CFO convicted of fraud against 6.000 customers
• The COVID-19 crisis exposed serious flaws in Cred's model

Cred, a former San Francisco-based cryptocurrency lending platform, became the protagonist of one of the industry's costliest collapses after exposing risky and deceptive financial practices. Two of its top executives, co-founder and former CEO Daniel Schatt and former CFO Joseph Podulka, received combined sentences of 88 months in prison for defrauding thousands of customers.

Senior U.S. District Judge William Alsup, sentenced Schatt to 52 months in prison , while Podulka received 36 months. In addition, both will have to serve three years of supervised release and pay a fine of $25.000 each.

According to authorities, more than 6.000 customers suffered losses exceeding $140 million directly related to Cred's practices. However, based on current cryptocurrency valuations, the total losses resulting from the company's bankruptcy in November 2020 exceed $1 billion.

Cred's business model consisted of offering dollar loans secured by cryptocurrencies and promised returns on customer deposits. To achieve this, the company relied heavily on partnerships with foreign entities, whose risks were not disclosed to investors.

The crisis began in March 2020, when the COVID-19 pandemic caused a sharp drop in the price of Bitcoin. This movement exposed serious flaws in Cred's hedging strategy, leaving the company without protection against further market fluctuations.

A few days after the crash, Cred was informed by one of its hedging partners that it needed to liquidate all positions immediately, further jeopardizing its financial stability. Meanwhile, a Chinese company on which Cred depended was unable to honor tens of millions of dollars in commitments.

Despite the critical situation, executives chose to conceal the problems and continued to assure customers that operations were "functioning normally." During a public hearing on March 18, 2020, Schatt reinforced this false narrative, even though he was aware of the precarious situation.

In May 2024, both defendants pleaded guilty to conspiracy to commit wire fraud, ending years of legal disputes and marking yet another episode that highlights the risks associated with companies operating in the cryptocurrency-backed lending sector.