(KRON) — Two Bay Area business executives of the now-bankrupt cryptocurrency lender Cred LLC, were sentenced to years in federal prison Friday for an investment-fraud scheme that cost their customers and investors more than $1 billion in lost cryptocurrencies, according to the Department of Justice.
Cred LLC’s former CEO, 55-year-old Daniel Schatt of San Mateo, and former CFO, 53-year-old Joseph Podulka of Palo Alto, were sentenced to 52 months and 36 months in federal prison, respectively. Schatt and Podulka were both indicted by a federal grand jury in May of 2024. On May 13, the pair pleaded guilty to one count of wire fraud conspiracy for their roles in defrauding Cred customers.
“According to the plea agreements, Schatt and Podulka conspired to present an incomplete, unreasonably positive, and thus misleading portrayal of Cred’s business while failing to disclose negative material information about Cred’s business challenges and risks to Cred’s customers,” the Department of Justice said in a statement Friday.
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Cred, a San Francisco-based firm that provided financial services to holders of cryptocurrency and other assets, filed for bankruptcy on Nov. 7, 2020. According to their plea agreements, Schatt and Podulka’s conspiracy began in March 2020 during the start of the COVID-19 pandemic, which brought on a “sudden and dramatic decrease” in the price of Bitcoin, the DOJ said.
“Within days of the crash, Cred learned from its hedging partner that Cred was underwater and needed to liquidate all its trading positions,” the DOJ said. “The hedging partner then ended its relationship with Cred, leaving Cred with no hedges and no hedging strategy going forward. As the conspiracy progressed, Defendants also learned that the Chinese company would not be able to pay back tens of millions of dollars to Cred.”
FILE – In this April 3, 2013 photo, a 25 Bitcoin token is displayed in Sandy, Utah. (AP Photo/Rick Bowmer, File)
Instead of informing customers and investors of the company’s declining financial position, Schatt and Podulka “made misleading representations” and told them that the business was “‘operating normally,’” the DOJ said. During the company’s bankruptcy proceedings, Cred customers and investors filed more than 6,000 claims for more than $140 million. The lost cryptocurrencies would now be worth more than $1 billion, according to the sentencing memorandum submitted by federal prosecutors.
U.S. Attorney Craig Missakian said that Schatt and Podulka’s “criminal conspiracy caused significant harm to Cred’s customers.”
“This prosecution should serve as a reminder that my office will aggressively prosecute fraud schemes undermining the integrity of cryptocurrency markets,” Missakian said. “Fraud targeting cryptocurrency investors and customers will not be tolerated and wrongdoers will be held accountable for their actions.”
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IRS Criminal Investigation Oakland Field Office Special Agent Linda Nguyen said that Schatt and Podulka’s scheme was the result of “greed and egoism.”
“Cryptocurrency may still seem foreign to some people, but investment fraud schemes are nothing new,” Nguyen said. “IRS-CI special agents are the best financial investigators in the world and will not stand by and allow companies to defraud their customers through malicious actions. Our partnership with the U.S. Attorney’s Office and FBI has never been stronger as we will continue to relentlessly pursue these types of crimes based on greed and egoism.”
Senior U.S. District Judge William Alsup sentenced the men to three years of supervised release in addition to their prison terms, and fined each of them $25,000. The men will begin serving their sentences on Oct. 28.
John Ross Ferrara
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