The infamous Cred crypto scam has taken center stage in federal court, as two former executives admit to defrauding investors of $150 million. Their legacy, now etched in scandal, begins with a name that will follow them forever—Cred.
Daniel Schatt, Cred’s co-founder and ex-CEO, along with former CFO Joseph Podulka, pleaded guilty to federal charges of wire fraud conspiracy in a San Francisco courtroom on Tuesday.
The duo admitted to misleading investors and concealing the true financial state of Cred in the months leading up to its devastating 2020 bankruptcy.
Selective transparency fueled the Cred crypto scam
Court records revealed a carefully orchestrated pattern of deception that formed the foundation of the Cred crypto scam. U.S. District Judge William Alsup said Schatt and Podulka “acted together with the common goal of presenting an incomplete, unreasonably positive and thus misleading portrayal” of the company’s operations.
Instead of warning customers about systemic risk and exposure, executives “selectively presented positive information while failing to disclose negative news.” The intent was clear: gain deposits, suppress panic, and keep the illusion alive.
The Cred crypto scam gained momentum during the infamous March 2020 crypto flash crash, when Bitcoin nosedived 40% in one day due to COVID-induced market panic.
According to Schatt’s court testimony, the collapse created “a risk for Cred,” which quickly faced mounting margin calls it couldn’t meet.
But instead of sounding the alarm, Schatt and Podulka doubled down. They lured in more funds from unsuspecting customers to fill the gaps left by market volatility. Their goal was to delay the inevitable collapse—one more day, one more deposit.
MoKredit: The Unseen Domino
A critical catalyst in the Cred crypto scam was MoKredit, a Chinese microloan platform that received approximately 80% of Cred’s customer assets. MoKredit’s founder, Lu Hua, was also a co-founder of Cred, a fact buried from customers.
According to a Department of Justice (DOJ) press release, MoKredit issued unsecured loans primarily to Chinese gamers. When MoKredit began to default on repayments, Cred’s entire model began to unravel. And yet, the executives said nothing.
Court documents described how Cred continued sending customer funds to MoKredit, despite knowing it was no longer solvent. “Virtually all of the interest payments” Cred used to generate customer yield came from MoKredit’s increasingly fragile repayments.
“Not only did Cred fail to disclose these risks,” said Judge Alsup, “they actively concealed them while continuing to raise funds.”
Cred Crypto Scam Marks a Dark Chapter in Crypto Lending | X/CoinRank_io
A House of Cards Built on Mismanagement
The Cred crypto scam wasn’t just about bad loans—it was about willful neglect. One of the final blows came when Chief Capital Officer James Alexander allegedly fled with nearly $2 million worth of Bitcoin. This event, which further crippled Cred’s liquidity, was also hidden from customers.
By the time Cred filed for bankruptcy in October 2020, more than 6,000 claims were filed, representing over $140 million in losses. Some estimates now peg the final customer losses at $150 million, making it one of the largest crypto lender collapses of its time.
While Schatt and Podulka await sentencing, crypto watchdogs are calling for stricter lending transparency standards.
“The Cred crypto scam is a wake-up call,” said John Reed Stark, former Chief of the SEC’s Office of Internet Enforcement. “Without real-time disclosures and third-party audits, crypto lenders are no better than unregulated black boxes.”
Crypto investor and analyst Adam Cochran added, “The fact that 80% of Cred’s deposits were funneled to a related-party borrower without disclosure is absolutely insane. This is fraud, plain and simple.”
What Investors Can Learn From the Cred Crypto Scam
Transparency Matters: If a crypto company won’t share how it generates yields, that’s a red flag.
Too Good to Be True? It Probably Is: Consistent high yields during bear markets are suspicious.
Related-Party Lending Destroys Trust: MoKredit’s connection to Cred was conflict of interest 101.
Liquidity Is Life: When Bitcoin crashed, so did Cred. Sound firms prepare for volatility.
Audits Save Portfolios: Independent, frequent audits could’ve prevented—or at least exposed—this disaster.
With the guilty pleas now public, Schatt and Podulka face the possibility of up to 20 years in prison. Sentencing is scheduled for later this year. While restitution discussions are underway, the likelihood of full recovery for victims is slim.
For crypto to evolve and thrive, it must confront its shadows. And the Cred crypto scam is a shadow the entire industry must learn from—never repeat. The Bit Gazette will continue to observe the market and report as events unfold.
Davidson Okechukwu is a passionate crypto journalist and Web3 enthusiast with a degree in Computer Science and various professional certifications from prestigious institutions. With over four years of experience in the crypto and DeFi space, Davidson combines his technical knowledge with a keen understanding of market dynamics. In addition to his work in cryptocurrency, he is a dedicated realtor and web management professional.
