Key Takeaways
- • New York Attorney General Letitia James secured a $5 million settlement from cryptocurrency platform Uphold for promoting CredEarn, a fraudulent investment product operated by Cred, LLC and CEO Daniel Schatt between January 2019 and October 2020.
- • Uphold misrepresented CredEarn as a safe savings vehicle with attractive returns while concealing that Cred generated yields through high-risk microloans to unbanked video game players in China with no credit histories.
- • The settlement requires Uphold to pay affected customers more than five times the fees it collected from the scheme, plus any recovered funds from Cred's ongoing bankruptcy proceedings where Uphold is owed $545,189.
- • Cred filed for bankruptcy in November 2020 after accumulating losses from its risky lending practices beginning March 2020, leaving thousands of Uphold users globally with losses; Uphold also lacked required broker-dealer registration during the product promotion period.
- • The settlement imposes ongoing compliance obligations on Uphold and represents a significant enforcement action against crypto platform operators for undisclosed asset risk and false insurance claims.
Summary
New York Attorney General Letitia James announced a settlement exceeding $5 million with cryptocurrency platform Uphold over its promotion of CredEarn, a fraudulent savings product offered by Cred, LLC under CEO Daniel Schatt. The product was marketed to Uphold users between January 2019 and October 2020 as a safe, reliable savings instrument with attractive annual interest payments. However, Uphold failed to disclose critical information about the underlying investment strategy that generated these returns.
The core issue centers on Cred's lending practices: the company was generating CredEarn returns by issuing microloans to low-income video game players in China who typically lacked credit histories and had no access to traditional financial institutions. This high-risk lending operation was concealed from Uphold customers who believed they were holding a conservative savings product. Additionally, Uphold made false claims that Cred carried "comprehensive insurance" protecting retail investors from digital asset losses—a representation the Attorney General's office determined was entirely fabricated, as no such industry-wide insurance protection existed at that time.
Compounding these disclosure failures, Uphold operated without the broker or commodity broker-dealer registration required under applicable securities regulations during the promotion period. The risks inherent in Cred's business model materialized when the company began accumulating losses in March 2020 and filed for bankruptcy eight months later, leaving thousands of Uphold customers globally with substantial losses.
Under the settlement terms, Uphold will pay $5 million directly to affected customers—a figure exceeding the fees the platform collected from the arrangement by more than fivefold. Additionally, any funds Uphold recovers from Cred's bankruptcy proceedings, where the platform is currently owed $545,189, will be distributed to harmed investors. Affected users will be notified by email upon fund disbursement. The settlement also imposes ongoing compliance measures on Uphold to prevent similar violations.
The core issue centers on Cred's lending practices: the company was generating CredEarn returns by issuing microloans to low-income video game players in China who typically lacked credit histories and had no access to traditional financial institutions. This high-risk lending operation was concealed from Uphold customers who believed they were holding a conservative savings product. Additionally, Uphold made false claims that Cred carried "comprehensive insurance" protecting retail investors from digital asset losses—a representation the Attorney General's office determined was entirely fabricated, as no such industry-wide insurance protection existed at that time.
Compounding these disclosure failures, Uphold operated without the broker or commodity broker-dealer registration required under applicable securities regulations during the promotion period. The risks inherent in Cred's business model materialized when the company began accumulating losses in March 2020 and filed for bankruptcy eight months later, leaving thousands of Uphold customers globally with substantial losses.
Under the settlement terms, Uphold will pay $5 million directly to affected customers—a figure exceeding the fees the platform collected from the arrangement by more than fivefold. Additionally, any funds Uphold recovers from Cred's bankruptcy proceedings, where the platform is currently owed $545,189, will be distributed to harmed investors. Affected users will be notified by email upon fund disbursement. The settlement also imposes ongoing compliance measures on Uphold to prevent similar violations.
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