Inmate Procession: Ex-Executives from Cred receive Federal Sentencing for $150 Million Cryptocurrency Swindle

A federal judge has handed prison terms to two former executives of Cred, a failed crypto lender, following a public session on March 18, 2020, where Daniel Schatt, the former CEO, assured customers that the company was "operating normally" despite facing a liquidity crisis.

Daniel Schatt, the co-founder of Cred LLC, was sentenced to 52 months in federal prison. His former Chief Financial Officer, Joseph Podulka, received a sentence of 36 months. Both men will begin serving their prison terms on October 28, followed by three years of supervised release.

The executives were found guilty of wire fraud conspiracy charges, having misled customers about Cred's financial health while secretly funneling 80% of customer assets into high-risk microloans. This scheme resulted in more than 440,000 customers losing $140 million.

Judge Alsup ordered each man to pay a $25,000 fine in addition to their prison sentences. The 16-month gap between Schatt's and Podulka's sentences reflects "leadership hierarchy and culpability levels."

Ishita Sharma, a blockchain and crypto lawyer, noted that federal sentencing patterns in crypto fraud cases now differentiate based on several key factors, such as loss amount, role in the offense, and acceptance of responsibility. She stated that the Cred case reflects broader enforcement trends in crypto, where courts consider the reputational damage to the entire sector when sentencing individual executives.

In a related development, a restitution hearing is scheduled for October 7. The company suffered additional losses of $9 million due to a crypto scam, and James Alexander, the former Chief Capital Officer, allegedly appropriated approximately 255 BTC before being terminated.

Sharma urged crypto platforms to adopt a 'regulation-by-analogy' approach, borrowing from securities, banking, and commodities law. This approach, she believes, would help in maintaining trust and transparency in the crypto industry.

The sentences handed to Schatt and Podulka serve as a reminder that courts must balance individual circumstances with sending clear signals to the market. Schatt's 52-month sentence is shorter than Sam Bankman-Fried's 25 years but longer than several plea-based cases. This suggests that while guilty pleas reduce exposure, sentences must still reflect "the severity of betraying customer trust in an emerging industry."

Both men will serve three years of supervised release after completing their prison terms. The sentences mark a significant milestone in the ongoing efforts to uphold integrity and accountability in the crypto sector.