New York secures crypto settlement from Uphold over CredEarn promotion

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New York Uphold crypto settlement

Highlights

Uphold will pay $5 million to affected customers under a settlement with New York, after promoting CredEarn without proper registration and misleading insurance claims.
Cred's bankruptcy in November 2020 left thousands of Uphold customers exposed globally, with additional recoveries from Cred's $545,189 debt to Uphold to be distributed to investors.
New York escalated digital asset enforcement by recently suing Coinbase and Gemini over prediction markets, prompting a federal lawsuit from the CFTC challenging the state's authority.

Settlement terms and alleged misconduct

As announced by the New York Attorney General's office, the case focuses on Uphold's promotion of CredEarn, a product offered by Cred, LLC and its chief executive Daniel Schatt, between January 2019 and October 2020. State officials say Uphold presented the product on its platform and mobile app as a safe and reliable way to earn attractive annual interest payments.

The Attorney General's office says Uphold did not disclose that Cred was generating returns through microloans to low-income video game players in China, a borrower base described as having limited credit histories and little access to traditional financial institutions. The office also says Uphold told customers Cred had comprehensive insurance, even though no such industry insurance existed at the time to protect retail investors from digital asset losses.

State officials further say Uphold operated without the required broker or commodity broker-dealer registration. Under the settlement, Uphold will pay $5 million directly to affected customers, more than five times the fees it collected from the arrangement, and any money it recovers from Cred's ongoing bankruptcy proceedings, where it is owed $545,189, will also be passed on to investors.

Customer fallout and wider regulatory context

Cred began accumulating losses from its lending practices in March 2020 and filed for bankruptcy eight months later, leaving thousands of Uphold customers globally exposed, according to the Attorney General's announcement. Affected users are to be notified by email when settlement funds reach their accounts.

Attorney General Letitia James says investors should be able to trust the industry advice they receive and that her office will continue pursuing firms that put customers' financial security at risk. The case adds to New York's recent digital asset and market oversight actions, after the state last month sued Coinbase and Gemini over prediction market offerings that it says violate gambling laws.

That dispute has widened into a federal-state clash. The Commodity Futures Trading Commission has sued New York in federal court, arguing that federal law gives it sole authority over prediction markets and seeking a permanent injunction to block the state's enforcement actions.

Our earlier article on the U.S. prediction markets jurisdiction fight explained how federal and state regulators are clashing over oversight of event contracts as trading activity grows. We noted the CFTC’s pushback against state enforcement actions and how that debate affects platforms’ market access, compliance obligations, and potential U.S. reentry plans for firms that previously faced settlements.

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