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Two former executives at a San Francisco-based financial services company were each sentenced to multiple years in federal prison on Friday.
Former Cred LLC CEO and San Mateo resident Daniel Schatt, 55, was sentenced to 52 months, while the company’s former CFO and Palo Alto resident Joseph Podulka, 53, was given a sentence of 36 months.
Both pleaded guilty in May to one count of wire fraud conspiracy for defrauding people by providing incomplete, misleading and “unreasonably positive” information to customers. In reality, the two failed to disclose negative information and challenges they knew the company was facing, prosecutors said.
Cred, a San Francisco-based firm that provided financial services to holders of cryptocurrency and other assets, relied upon a risky hedge strategy that made loans to customers in U.S. dollars, utilizing a Chinese company co-founded by one of the executives that made microloans to Chinese gamers at high interest rates. Another third-party company was involved in essentially insuring the strategy through another financial arrangement.
In March 2020, the executives claimed Cred was performing normally, despite a steep drop in the price of Bitcoin at the onset of the COVID-19 pandemic, which saw the price of the digital currency plummet by about half from its February high.
They made the assurances to their customers despite knowing that the third-party company had severed its relationship with Cred and the Chinese gaming lender had to liquidate its holdings and was no longer functional, according to prosecutors.
By November that year, Cred declared bankruptcy. About 6,000 customers filed claims worth more than $140 million at the time, which are now valued at over $1 billion.
A restitution hearing is scheduled for Oct. 7 and both are scheduled to start serving their sentences on Oct. 28.
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