New York Attorney General Letitia James has secured more than $5 million from cryptocurrency platform Uphold over its role in promoting a fraudulent investment product.
The settlement centers around Uphold’s promotion of CredEarn, a product offered by Cred, LLC and its CEO Daniel Schatt. Between January 2019 and October 2020, the platform marketed CredEarn to users on its platform and mobile app as a safe, reliable savings product with attractive annual interest payments.
However, Uphold didn’t tell customers that Cred was generating those returns by making microloans to low-income video game players in China, who are typically borrowers with no credit histories and no access to traditional financial institutions, the Attorney General’s office said in an announcement.
Source: NY AG James
Uphold also told customers that Cred carried “comprehensive insurance,” a claim the Attorney General’s office found to be false. No such insurance protecting retail investors from digital asset losses existed in the industry at the time. On top of the misleading promotion, Uphold was operating without the required broker or commodity broker-dealer registration.
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Cred collapse hits Uphold users
Cred began racking up losses from its risky lending practices in March 2020 and filed for bankruptcy eight months later, leaving thousands of Uphold customers around the world holding the bag, according to the announcement.
Under the settlement, Uphold will pay $5 million directly to affected customers, more than five times the fees it collected from the arrangement. Any funds Uphold recovers from Cred’s ongoing bankruptcy proceedings, where it is owed $545,189, will also be passed on to harmed investors. Affected users will be notified by email when the funds hit their accounts.
“Investors should be able to trust the industry advice they receive,” James said, “and my office will always work to ensure bad actors are held accountable for endangering their customers’ financial security.”
Related: US Gov’t Sues Four States, RWAs Cross $30 billion
New York’s legal run-up with CFTC
Last month, New York sued Coinbase and Gemini, claiming their prediction market offerings violated state gambling laws.
The CFTC fired back by suing New York in federal court, arguing that federal law gives it sole authority over prediction markets and asking for a permanent injunction to block the state’s enforcement actions.
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