Two former executives of bankrupt San Francisco-based cryptocurrency lender Cred LLC have been sentenced to federal prison after being convicted of a wire fraud conspiracy, prosecutors said.
According to the U.S. Attorney’s office for the Northern District of California, Daniel Schatt, the company’s co-founder and CEO, was sentenced Friday to 52 months. Joseph Podulka, the company’s CFO, received a 36-month sentence.
Schatt, a 55-year-old San Mateo resident, and Polulka, a 53-year-old Palo Alto resident, both pled guilty in May to wire fraud conspiracy. The pair, along with former chief capital officer James Alexander, were indicted last year.
The company, which provided financial services to people who hold cryptocurrency, declared bankruptcy in Nov. 2020.
“The defendants’ criminal conspiracy caused significant harm to Cred’s customers,” U.S. Attorney Craig Missakian said in a statement Friday. “Fraud targeting cryptocurrency investors and customers will not be tolerated and wrongdoers will be held accountable for their actions.”
According to prosecutors, Cred’s business primarily offered loans to customers using crypto as collateral and accepting deposits of cryptocurrency in exchange for interest.
Prosecutors said the business depended on a relationship with a Chinese firm founded by one of Cred’s co-founders to generate the interest yield, a fact that many customers did not know.
“Under this arrangement, Cred would loan the Chinese company a percentage of Cred’s customers’ funds, and the Chinese company would make short-term, high-interest microloans to Chinese gamers to generate interest to pay back to Cred,” the U.S. Attorney’s office said.
The business also depended on a hedging strategy using a third-party company to protect Cred from overexposure to fluctuations in the crypto market.
According to the plea agreement, the executives’ conspiracy began in March 2020, as the COVID-19 pandemic began and the price of Bitcoin suddenly crashed.
Cred learned from its hedging partner that Cred was underwater and needed to liquidate all of its trading positions, prosecutors said. The Chinese company also told Cred that it would not be able to pay back tens of millions of dollars.
Prosecutors said the executives did not reveal the company’s worsening financial situation and misled customers and investors.
According to prosecutors, Schatt said during a public “Ask Management Anything” session on March 18, 2020 that he said Cred was “operating normally.”
“Daniel Schatt and Joseph Podulka orchestrated a scheme in which they deceived both investors and customers out of their hard-earned funds in an attempt to extend a failing business,” said FBI Special Agent in Charge Matt Cobo.
After the company filed for bankruptcy, customers and investors filed more than 6,000 claims totaling more than $140 million. The government’s sentencing memorandum said the claims are worth more than $1 billion, using Aug. 2025 valuations.
Along with prison time, the judge also sentenced Schatt and Podulka each to three years of supervised release and a fine of $25,000.
Prosecutors said a restitution hearing has been scheduled for Oct. 7. The pair will begin serving their sentences on Oct. 28.
