Convicted Cryptocurrency Swindlers, Previously from Cred, Receive Incarceration in Federal Penitentiary for Orchestrating $150 Million Swindle

A federal judge has handed prison terms totaling nearly eight years to two former executives at Cred, a failed crypto lender. The executives, Daniel Schatt, the former CEO and co-founder, and Joseph Podulka, the Chief Financial Officer, were sentenced after pleading guilty to wire fraud conspiracy charges.

Schatt received 52 months in federal prison, while Podulka was sentenced to 36 months. In addition to prison time, each man was ordered to pay a $25,000 fine. The sentences for Schatt and Podulka show that courts weigh "loss amount, role in offense, and acceptance of responsibility."

The collapse of Cred during the 2020 crypto market crash resulted in losses of over $140 million for more than 440,000 customers. Ishita Sharma, a blockchain and crypto lawyer, noted that federal sentencing patterns in crypto fraud cases now differentiate based on several key factors. She said, "The key lesson from Cred is that opacity in gray zones invites aggressive enforcement-companies should over-disclose rather than exploit regulatory gaps."

During a March 18, 2020 public session, Schatt told customers that Cred was "operating normally" despite knowing the company faced a liquidity crisis. Meanwhile, the executives misled customers about Cred's financial health while secretly funneling 80% of customer assets into high-risk microloans to Chinese gamers.

The losses are now worth over $1 billion at current prices. The company also lost an additional $9 million to a crypto scam. James Alexander, the Chief Capital Officer of Cred, allegedly appropriated approximately 255 BTC before being terminated.

Sharma also noted that judges now weigh whether sentences "properly deter similar misconduct while maintaining proportionality to the specific harm caused." A restitution hearing is scheduled for October 7. Both Schatt and Podulka will begin serving their prison terms on October 28, followed by three years of supervised release.

Interestingly, crypto platforms like Bitpanda and eToro actively manage legal uncertainty by providing proactive information and following a "regulation-by-analogy" approach. This approach aligns their operations with securities, banking, and commercial law regulations. Bitpanda is BaFin-regulated in Germany and holds multiple licenses including MiFID II, E-Money, and PSD II, reflecting this approach.

For crypto platforms steering through regulatory uncertainty, Sharma urged a "'regulation-by-analogy' approach" that borrows from securities, banking, and commodities law. This approach, she said, can help companies navigate the complex regulatory landscape and avoid potential legal issues.

Convicted Cryptocurrency Swindlers, Previously from Cred, Receive Incarceration in Federal Penitentiary for Orchestrating $150 Million Swindle