New York Secures $5 Million from Uphold for CredEarn Initiative
Letitia James, the Attorney General of New York, has secured over $5 million from the cryptocurrency platform Uphold.
Overview
- Uphold will pay more than $5 million directly to customers affected by the failed CredEarn product.
- New York indicated that users of CredEarn were not properly informed of the associated risks of the promoted returns.
- This settlement is part of New York’s wider enforcement efforts aimed at cryptocurrency products and market operators.
The agreement concerns Uphold’s promotion of CredEarn, a cryptocurrency savings product linked to Cred, LLC.
The New York Attorney General’s office reported that Uphold promoted CredEarn from January 2019 until October 2020, advertising it on its platform and mobile app as a dependable crypto savings option with interest payments.
The settlement clarifies that CredEarn was associated with Cred, LLC and its CEO Daniel Schatt. New York emphasized that the product misled investors, as customers lacked a clear understanding of the risks tied to the promised returns.
New York points out undisclosed significant risks
The Attorney General’s office noted that Uphold failed to inform customers that Cred used the funds for risky loans to borrowers in China, including low-income gamers with minimal credit history and limited access to banking.
Additionally, New York pointed out that Uphold falsely claimed that Cred had “comprehensive insurance,” when no such coverage existed to protect retail investors from losses in digital assets at the time.
Furthermore, Cred started incurring losses from its lending operations in March 2020 and later declared bankruptcy that same year, leaving numerous Uphold customers with financial losses after investing in CredEarn.
Under the terms of the settlement, Uphold will provide over $5 million directly to affected customers, which is more than five times the fees collected from this arrangement. Any recovery that Uphold obtains from Cred’s bankruptcy will be allocated to the impacted investors.
Uphold’s registration challenges heighten scrutiny
The Attorney General’s office also indicated that Uphold operated without the necessary broker or commodity broker-dealer registration. The settlement documentation states that digital assets are classified as commodities under New York’s Martin Act, and Uphold failed to register while marketing crypto and promoting CredEarn.
James stated, “Investors should be able to trust the advice provided by the industry.” Uphold has challenged some of the state’s assertions. Its CEO, Simon McLoughlin, expressed his “deep disappointment” and termed the Attorney General’s remarks as “profoundly inaccurate.”
New York escalates enforcement on cryptocurrency companies
The settlement with Uphold coincides with ongoing enforcement actions against the cryptocurrency industry in New York. Recently, the state filed lawsuits against Coinbase and Gemini regarding prediction market offerings, alleging violations of state gambling regulations.
The CFTC subsequently initiated a lawsuit against New York in federal court, asserting that federal law gives it authority over prediction markets. This separate legal challenge highlights the ongoing conflict between state and federal regulators regarding jurisdiction in parts of the cryptocurrency market.