Ex-Cred Brass Collared: Execs Cop to $150M Crypto Con
Another day, another ’trust us, we’re blockchain experts’ sob story—this time with handcuffs. Former Cred bigwigs just folded like a cheap ICO, pleading guilty to running a nine-figure crypto scam that vaporized investor funds faster than a meme coin post-hype.
How it worked: The usual Web3 playbook. Flashy promises of ’institutional-grade yield,’ complex financial jargon masking empty wallets, and just enough regulatory gray area to buy time before the house of cards collapsed. Classic.
The fallout? A cool $150M gone—enough to make even Wall Street blush (though they’d call it ’aggressive client acquisition’). Meanwhile, retail investors are left holding the bag while the SEC adds another notch to its ’late to the party’ enforcement belt.
Silver lining? At least these fraudsters used blockchain—their entire grift is now immutably stupid on the public ledger.
Liquidity crisis, flash crash
Cred’s downfall began during the March 2020 flash crash when Bitcoin plummeted 40%, liquidating $750 million in a day at the onset of the COVID-19 pandemic.
At the time, Cred executives reportedly tried to sustain their business by attracting new customer funds and discouraging redemption requests.
"Bitcoin took a precipitous fall, creating a risk for Cred," Schatt said in court. As a result, Cred was unable to meet its margin calls, Schatt confirmed, nodding to Judge Alup.
But the crypto market crash and Cred’s response to it only marked the beginning of the company’s demise.
It worsened when Cred suffered a $40 million shortfall from unpaid loans, primarily from MoKredit, its primary borrower.
MoKredit was founded by Cred’s co-founder, Lu Hua. The platform issued "unsecured microloans to Chinese gamers," per a press release from the DOJ.
Cred reportedly funneled roughly 80% of its customer assets into MoKredit, effectively tying its solvency to the borrower’s ability to repay.
Despite its high risk, MoKredit was Cred’s main revenue source, generating "virtually all of the interest payments" for customer yields, according to an unsealed indictment on Schatt.
The company "did not disclose those repeated failures" from MoKredit to its customers, Judge Alsup said, adding that Cred went on with this strategy despite knowing "about MoKredit’s debt and failure to repay."
Court documents revealed the company suffered additional blows when its Chief Capital Officer James Alexander allegedly "absconded" with bitcoin worth about $2 million at the time.
A separate indictment for Alexander was unsealed last year. Schatt also acknowledged that Cred fell victim to a "sham" that cost it 800 BTC valued at over $9 million.
Prosecutors recommended sentences of up to 72 months for Schatt and 62 months for Podulka.
A sentencing hearing is slated for August 26.
