Cryptocurrency platform Uphold HQ misled investors, New York State charges
The company has agreed to pay more than $5 million to settle the charges
The cryptocurrency platform Uphold HQ has agreed to pay more than $5 million for misleading investors and promoting a fraudulent cryptocurrency investment scheme orchestrated by Cred, LLC (Cred) and it’s Chief Executive Officer, Daniel Schatt.
An investigation by New York Attorney General Letitia James found that Uphold misleadingly promoted and offered Cred’s investment product, CredEarn, to its customers, in violation of New York law.
Uphold advertised CredEarn as a reliable savings product, when in reality, Cred was making risky loans to borrowers in China who had no credit histories. When Cred collapsed in 2020, thousands of Uphold’s customers across the world who had invested in CredEarn lost millions of dollars. As a result of today’s settlement, Uphold will pay $5 million to harmed investors – more than five times the amount it earned in fees it collected – and change its policies to better protect users from third-party investment schemes.
Devastating consequences
“When crypto companies break the law and mislead investors, the consequences can be devastating to New Yorkers’ livelihoods,” said James. “Uphold promoted risky investments and misled its customers to believe they were safe. Investors should be able to trust the industry advice they receive, and my office will always work to ensure bad actors are held accountable for endangering their customers’ financial security.”
Uphold is a cryptocurrency platform that offers users the ability to buy, sell, and trade digital assets. From January 2019 through October 2020, Uphold offered CredEarn on its platform and mobile app. CredEarn promised significant annual interest payments to customers who invested their cryptocurrency in the company.
In advertising CredEarn, Uphold misleadingly promoted it as a safe, reliable savings product, James charged. In reality, Cred generated interest through risky micro-loans to video game players in China who had low monthly incomes, no credit histories, and no access to credit through traditional Chinese financial institutions.
In promoting CredEarn, Uphold also stated that Cred was covered by “comprehensive insurance,” but no insurance that would protect retail investors from investment losses of digital assets existed in the industry. The OAG’s investigation also found that Uphold was illegally promoting CredEarn without registering as either a broker or commodity broker-dealer.
Significant losses
Starting in March 2020, Cred incurred significant losses due to its risky lending practices and mismanagement, and declared bankruptcy in November 2020, resulting in investor losses of millions of dollars.
As a result of the New York investigation, Uphold will pay $5 million to customers who suffered losses. All payments Uphold receives from Cred’s bankruptcy proceedings, in which it is owed $545,189, will also be paid to customers who were harmed.
Investors will receive an email from Uphold informing them that funds will be distributed to their accounts. Additionally, Uphold must maintain and improve its due diligence policies before partnering with or recommending a third-party investment product. As part of the settlement, Uphold will also register as a broker with New York.