New York Attorney General Letitia James has obtained a settlement exceeding $5 million from the cryptocurrency platform Uphold. The case revolves around Uphold’s promotion of a crypto savings product called CredEarn, which was linked to Cred, LLC. Between January 2019 and October 2020, Uphold actively marketed CredEarn through its platform and mobile app, portraying it as a reliable savings vehicle that generated interest payments.
The New York Attorney General’s office determined that CredEarn misled investors by failing to disclose significant risks. Cred, LLC, along with its CEO Daniel Schatt, used the funds raised to provide loans to risky borrowers in China, including low-income video game players who lacked credit histories and had limited access to traditional banking. This lending strategy was not communicated to customers, who were led to believe their investments were secure.
Furthermore, Uphold allegedly claimed that Cred had comprehensive insurance coverage, but regulators found this to be untrue. No such insurance protected retail investors against losses in digital assets at the time. The problems escalated in March 2020 when Cred began suffering losses from its lending activities, ultimately filing for bankruptcy later that year. This left thousands of Uphold customers who had deposited digital assets into CredEarn facing significant losses.
Under the terms of the settlement, Uphold will pay more than $5 million directly to affected customers, an amount five times greater than the fees Uphold earned from the arrangement. Any funds Uphold recovers from Cred’s bankruptcy proceedings will also be directed to harmed investors. Additionally, the Attorney General’s office noted that Uphold operated without the required registration as a broker or commodity broker-dealer, as digital assets are classified as commodities under New York’s Martin Act.
Despite the settlement, Uphold’s CEO Simon McLoughlin expressed disappointment, calling the Attorney General’s statement profoundly inaccurate. This case adds to New York’s broader enforcement efforts against crypto firms, following recent legal actions against Coinbase and Gemini over prediction market offerings that allegedly violated state gambling laws. The ongoing disputes between state and federal regulators continue to shape the regulatory landscape for cryptocurrencies.