Key Takeaways
- • New York Attorney General Letitia James secured a $5 million settlement from cryptocurrency platform Uphold HQ, Inc. for promoting an unregistered crypto yield product (CredEarn) operated by Cred LLC and its CEO Daniel Schatt, marking the first New York enforcement action targeting a platform promoting a third-party crypto yield scheme.
- • Uphold allegedly violated the Martin Act and New York Executive Law § 63(12) by marketing the crypto lending product as a low-risk savings vehicle while omitting material risk disclosures, misrepresenting "comprehensive insurance" coverage that excluded investment losses, and failing to register the investment contracts.
- • The settlement requires Uphold to pay $5 million in monetary relief, distribute recovered funds to eligible investors, and implement a risk-based due diligence process for all third-party product partnerships going forward.
- • This enforcement action signals intensified state regulatory scrutiny of crypto yield products and third-party product distribution models, with particular focus on registration obligations, marketing transparency, and partner due diligence procedures.
Summary
New York Attorney General Letitia James announced on April 29 a $5 million settlement with Uphold HQ, Inc., a cryptocurrency trading platform, resolving allegations that the company misled investors by promoting CredEarn, a fraudulent crypto yield product created and operated by Cred LLC and its Chief Executive Officer Daniel Schatt. The settlement, formalized through an Assurance of Discontinuance, represents the first regulatory enforcement action in New York targeting a platform that promoted a third-party crypto yield scheme rather than managing its own investment products.
According to the AG's investigation, Uphold violated the Martin Act and New York Executive Law § 63(12) by advertising CredEarn to users as a method to earn interest on digital assets while engaging in multiple forms of deception. The platform's marketing materials promoted high returns and claimed to offer "comprehensive insurance" protection without adequately disclosing that the insurance coverage explicitly excluded investment losses. Additionally, Uphold failed to disclose that investor assets were being deployed into higher-risk lending arrangements through undisclosed counterparties. Most critically, the lending agreements themselves constituted unregistered investment contracts that Uphold facilitated without proper securities registration.
The settlement's structural remedies extend beyond monetary penalties. Uphold must distribute the $5 million settlement amount to eligible investors who suffered losses from the CredEarn scheme, ensuring direct restitution to affected customers. The company is further required to establish and maintain a risk-based due diligence framework for evaluating and monitoring all third-party product partners before offering or promoting their products to Uphold's customer base.
This enforcement action carries significant implications for the broader cryptocurrency industry. It establishes a regulatory precedent that platforms cannot rely on third-party product operators to assume sole compliance responsibility. Instead, platforms that distribute or promote external crypto yield products face direct liability for marketing practices, disclosure adequacy, and partner risk assessment. Market participants offering or distributing digital asset yield products must now conduct thorough compliance reviews of registration status, marketing materials, risk disclosures, and third-party partner vetting procedures to avoid similar enforcement actions from state regulators.
According to the AG's investigation, Uphold violated the Martin Act and New York Executive Law § 63(12) by advertising CredEarn to users as a method to earn interest on digital assets while engaging in multiple forms of deception. The platform's marketing materials promoted high returns and claimed to offer "comprehensive insurance" protection without adequately disclosing that the insurance coverage explicitly excluded investment losses. Additionally, Uphold failed to disclose that investor assets were being deployed into higher-risk lending arrangements through undisclosed counterparties. Most critically, the lending agreements themselves constituted unregistered investment contracts that Uphold facilitated without proper securities registration.
The settlement's structural remedies extend beyond monetary penalties. Uphold must distribute the $5 million settlement amount to eligible investors who suffered losses from the CredEarn scheme, ensuring direct restitution to affected customers. The company is further required to establish and maintain a risk-based due diligence framework for evaluating and monitoring all third-party product partners before offering or promoting their products to Uphold's customer base.
This enforcement action carries significant implications for the broader cryptocurrency industry. It establishes a regulatory precedent that platforms cannot rely on third-party product operators to assume sole compliance responsibility. Instead, platforms that distribute or promote external crypto yield products face direct liability for marketing practices, disclosure adequacy, and partner risk assessment. Market participants offering or distributing digital asset yield products must now conduct thorough compliance reviews of registration status, marketing materials, risk disclosures, and third-party partner vetting procedures to avoid similar enforcement actions from state regulators.
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