Ex-Cred Execs Slammed with 88-Month Prison Sentence Following $140M Crypto Collapse

Crypto's house of cards comes crashing down—again.

Justice Served Cold

Two former Cred executives just got a combined 88-month prison stretch. Their crime? Orchestrating a $140 million collapse that vaporized investor funds. The court didn't mince words—this was outright fraud, not some 'market downturn.'

Pattern Recognition

Sound familiar? It should. Another day, another crypto firm imploding under the weight of its own hubris. These weren't rogue traders or accidental losses—this was a calculated scheme that preyed on trust. The sentencing sends a clear message: play stupid games, win orange jumpsuits.

Finance's Eternal Optimism

Somehow, despite the constant stream of scandals, true believers still pour cash into unregulated ventures hoping for moonshots. It’s almost impressive—like watching someone double-down on a slot machine after it’s already eaten their life savings.

Bottom line: due diligence beats hype. Every time.

Cred executives pleaded guilty in May

Both defendants pleaded guilty in May to wire fraud conspiracy charges stemming from their deceptive business practices at the San Francisco-based cryptocurrency lending platform.

The sentences cap a lengthy legal battle that began with Cred’s November 2020 bankruptcy filing.

Using current cryptocurrency valuations from August, the government estimates customer losses exceed $1 billion. This makes this one of the costliest crypto lending failures to date.

Cred operated as a cryptocurrency financial services provider and offered dollar loans against crypto collateral and accepted customer deposits in exchange for promised yield payments.

The company’s business model relied heavily on partnerships with overseas entities that prosecutors say customers were largely unaware of.

The fraud conspiracy took root in March 2020 when COVID-19 market turmoil triggered a Bitcoin price crash.

This event exposed fatal flaws in Cred’s risk management strategy and set the stage for the executives’ subsequent deceptive conduct.

COVID Crash Exposed Cred’s Risky Business Model

The March 2020 crypto market crash badly affected Cred’s operations. Within days of Bitcoin’s (BTC) price collapse, the company learned from its hedging partner that it was financially underwater and needed to liquidate all trading positions immediately.

The hedging relationship, which was meant to protect Cred from cryptocurrency price volatility, abruptly ended. This left the company with no protection against future market swings and exposed customers to risks they weren’t informed about.

Compounding these problems, Cred discovered that a Chinese company it relied on for generating customer yields could not repay tens of millions of dollars. Instead of disclosing these mounting financial problems, Schatt and Podulka actively misled customers about the company’s health.

During a public “Ask Management Anything” session on March 18, 2020, Schatt assured customers that Cred was “operating normally” despite being aware of the severe financial distress.

Both executives will also serve three years of supervised release and pay a fine of $25,000.