Key Takeaways
- • Uphold HQ Inc. will pay $5 million to settle allegations by New York Attorney General Letitia James that it sold cryptocurrency without registering as a broker-dealer, violating state law.
- • The company promoted a Cred LLC investment product that lent customer digital assets to a third party making high-interest microloans (35%+ rates) to Chinese video gamers without credit histories, ranging from $1.45 to $290 per loan.
- • Approximately 2,200 investors will receive payouts from the settlement; the Attorney General's office identified at least two affected investors based on Long Island.
- • Cred LLC, the partner lending firm, filed for bankruptcy in November 2020, prompting Uphold's corrective action after discovering the scheme's details.
- • Uphold CEO Simon McLoughlin stated the company acted with integrity and immediately shut down access to the service upon learning of Cred's financial difficulties, characterizing Uphold as a victim of Cred's mismanagement.
Summary
New York Attorney General Letitia James announced a $5 million settlement with cryptocurrency platform Uphold HQ Inc. on Tuesday, resolving an investigation into the company's promotion of an unregistered investment product that exposed customers to high-risk lending schemes. The settlement alleges Uphold sold cryptocurrency without proper broker-dealer registration in violation of state law.
Under a 2018 agreement with Cred LLC, Uphold advertised a digital asset investment product to its customers, positioning it as a wealth-building opportunity. In practice, Cred lent the invested funds—primarily customer cryptocurrencies—to an undisclosed third party engaged in short-term microlending. That entity issued loans ranging from $1.45 to $290 to "Chinese video gamers" with no credit histories at interest rates "often exceeding 35%," according to the settlement terms. "Uphold promoted risky investments and misled its customers to believe they were safe," James stated.
The Attorney General's office estimates that 2,200 investors participated in the investment product and will qualify for payouts. At least two affected investors are located on Long Island, though the office did not confirm whether all identified investors will receive distributions. Cred filed for bankruptcy in November 2020, according to court records, which likely precipitated the discovery of the underlying lending practices.
Uphold operates offices in New York City, San Francisco, and Canada. CEO Simon McLoughlin disputed characterizations of the company's culpability, stating that Uphold "acted with integrity throughout its relationship with Cred LLC" and moved swiftly once financial irregularities surfaced. "As soon as Uphold became aware of the issues at Cred, we demanded that Cred notify its regulators, shut down access to the service, and acted to protect our customers immediately," McLoughlin said in a statement, framing Uphold as a victim of Cred's operational collapse rather than an active participant in the misconduct.
Under a 2018 agreement with Cred LLC, Uphold advertised a digital asset investment product to its customers, positioning it as a wealth-building opportunity. In practice, Cred lent the invested funds—primarily customer cryptocurrencies—to an undisclosed third party engaged in short-term microlending. That entity issued loans ranging from $1.45 to $290 to "Chinese video gamers" with no credit histories at interest rates "often exceeding 35%," according to the settlement terms. "Uphold promoted risky investments and misled its customers to believe they were safe," James stated.
The Attorney General's office estimates that 2,200 investors participated in the investment product and will qualify for payouts. At least two affected investors are located on Long Island, though the office did not confirm whether all identified investors will receive distributions. Cred filed for bankruptcy in November 2020, according to court records, which likely precipitated the discovery of the underlying lending practices.
Uphold operates offices in New York City, San Francisco, and Canada. CEO Simon McLoughlin disputed characterizations of the company's culpability, stating that Uphold "acted with integrity throughout its relationship with Cred LLC" and moved swiftly once financial irregularities surfaced. "As soon as Uphold became aware of the issues at Cred, we demanded that Cred notify its regulators, shut down access to the service, and acted to protect our customers immediately," McLoughlin said in a statement, framing Uphold as a victim of Cred's operational collapse rather than an active participant in the misconduct.
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