Former Executives of Cred Sentenced to Prison for Fraud
A federal judge on Friday imposed nearly eight years of prison time to two ex-executives at the defunct crypto lender Cred, whose actions contributed to one of the most significant investor losses in the crypto space.
Legal professionals Said that these sentences set new benchmarks for holding executives accountable in cases of crypto fraud.
Daniel Schatt, the former CEO and co-founder of Cred LLC, received a 52-month prison term, whereas the firm’s Chief Financial Officer, Joseph Podulka, was sentenced to 36 months.
Senior U.S. District Judge William Alsup delivered the sentences after both individuals pleaded guilty in May to charges of conspiracy to commit wire fraud.
The executives deceived customers about Cred’s financial stability while covertly directing 80% of customer funds into high-risk microloans for Chinese gamers through a related company.
The scheme collapsed during the crypto market crash in 2020, leading to over 440,000 customers suffering losses amounting to $140 million, which is now valued at more than $1 billion at current market prices.
Ishita Sharma, a blockchain and crypto attorney and managing partner at Fathom Legal, mentioned that recent federal sentencing trends in crypto fraud cases are increasingly distinguishing based on various major factors.
“Schatt’s 52-month sentence is shorter than Sam Bankman-Fried’s 25 years but longer than several plea-based cases,” Sharma observed.
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She emphasized that these sentences demonstrate how courts assess “loss amount, role in offense, and acceptance of responsibility,” with the 16-month difference between the CEO and CFO indicating “leadership hierarchy and culpability levels.”
“Courts must balance individual circumstances with the need to send clear signals to the market,” Sharma remarked, noting that guilty pleas can reduce exposure, but sentences still need to reflect “the seriousness of betraying customer trust in a developing industry.”
During a public session on March 18, 2020, Schatt reassured customers that Cred was “operating normally,” even though he was aware that the firm was experiencing a liquidity crisis.
The company also suffered an additional $9 million loss due to a crypto fraud and incurred more losses when Chief Capital Officer James Alexander allegedly misappropriated around 255 BTC before being dismissed.
Sharma indicated that the Cred case illustrates wider enforcement patterns whereby “courts are progressively considering the reputational damage to the entire crypto sector when meting out sentences to individual executives.”
She also mentioned that judges are now analyzing whether sentences “appropriately deter similar misconduct while remaining proportional to the specific harm inflicted.”
For crypto platforms navigating through regulatory ambiguity, Sharma emphasized the importance of proactive disclosure, advocating for a “‘regulation-by-analogy’ approach” that takes cues from securities, banking, and commodities laws.
“The key takeaway from Cred is that lack of transparency in gray areas invites stringent enforcement—companies should prioritize over-disclosing rather than trying to exploit regulatory loopholes,” she stated.
Both Schatt and Podulka are set to start serving their sentences on October 28, followed by three years of supervised release. A restitution hearing is scheduled for October 7.
Along with their prison sentences, Judge Alsup mandated that each man pay a fine of $25,000 and serve three years of supervised release.
