Bay Area/ San Francisco/ Crime & Emergencies
AI Assisted Icon
Published on May 05, 2024
3 Crypto Bro Execs Charged in $783M FraudSource: Google Street View

Three former executives of the now-defunct cryptocurrency firm Cred LLC have been charged with federal fraud for allegedly swindling customers and investors out of a staggering $783 million in digital assets. According to a grand jury indictment, Daniel Schatt, Joseph Podulka, and James Alexander face accusations of wire fraud conspiracy and related crimes.

U.S. Attorney Ismail Ramsey pulled no punches in announcing the charges, "Maintaining a market for continued prosperity requires rooting out those who use fraud as a substitute for success," he said via the U.S. Attorney's Office, Northern District of California press release. The scheme is said to have been perpetrated by luring victims with false promises, even as Cred spiraled towards bankruptcy. Schatt, 53, of San Mateo, and Podulka, 51, of Palo Alto, were specifically charged with conspiracy, thirteen counts of wire fraud, and money laundering in what is being called the Schatt Indictment. Alexander, 54, of Sherman Oaks, faces a similar string of charges in a separate indictment.

The indictments, as detailed by the Department of Justice, paint a picture of a company in deep financial distress. The company reportedly began making false and fraudulent claims about its lending and investing practices as early as March 2020. Contrary to Cred's public representations, the firm allegedly engaged in high-risk, uncollateralized lending, with funds overwhelmingly dependent on a single source — micro-loans to Chinese gamers.

The prosecution's narrative suggests the defendants desperately bid to keep Cred afloat, banking on new customer funds and discouraging client redemptions, even as the company's finances were in free fall. The crisis peaked following a cryptocurrency market "flash crash" in March 2020, which significantly devalued Cred's assets. In the wake of this upheaval, Schatt and Podulka reportedly failed to truthfully reveal the gravity of Cred's losses to a cryptocurrency exchange during a call in October 2020. Similarly, Alexander allegedly reassured a customer that the flash crash was "a good thing" for Cred while the firm was experiencing solvency issues.

According to the grand jury's findings, by the time Cred filed for bankruptcy in November 2020, its customers had sustained losses totaling approximately $150 million. If convicted on all counts, the defendants could face sentences of up to 20 years imprisonment for wire fraud and additional penalties for money laundering charges.

Schatt and Podulka, who appeared in federal court on May 2, are due on May 8 for further proceedings, including entering a plea. Alexander's court appearance has yet to be scheduled. The cases are being prosecuted by Assistant U.S. Attorneys Barbara J. Valliere and Adam A. Reeves with the collaborative effort of the FBI and IRS Criminal Investigation.