Settlement with Uphold
The New York Attorney General’s office, led by Letitia James, has reached a significant settlement with cryptocurrency platform Uphold, amounting to over $5 million. This legal agreement stems from Uphold’s marketing of its CredEarn product, a cryptocurrency savings option associated with Cred, LLC, which was actively promoted between January 2019 and October 2020.
Misleading Marketing Practices
According to the Attorney General’s office, Uphold advertised CredEarn as a trustworthy savings vehicle with interest earnings, thereby potentially misleading investors regarding the associated risks. Notably, customers were unaware that Cred, under the leadership of CEO Daniel Schatt, was engaged in high-risk lending practices targeting individuals in China, including low-income gamers lacking credit histories and banking access.
Furthermore, it was found that Uphold misrepresented the security of the investment by claiming Cred had “comprehensive insurance,” a statement which was determined to be untrue at the time, exposing retail investors to risks without adequate protection against digital asset losses.
Consequences of Lending Practices
Cred’s lending practices began deteriorating in March 2020, ultimately resulting in a bankruptcy filing later the same year, which left many Uphold users facing significant financial losses after depositing their assets into CredEarn. As part of the settlement, Uphold is obliged to directly compensate affected users, with the restitution amounting to more than five times the total fees that Uphold earned from this arrangement. Additionally, any funds recovered from the ongoing Cred bankruptcy proceedings will also be directed to the impacted investors.
Regulatory Violations and Broader Implications
The settlement further highlighted that Uphold operated without the necessary registrations as a broker or commodity broker-dealer, violating New York’s Martin Act, which classifies digital assets as commodities. James emphasized the importance of trust in the financial advice received by investors. In contrast, Uphold’s CEO, Simon McLoughlin, expressed disappointment at the portrayal of the situation by the Attorney General, deeming it “profoundly inaccurate.”
Ongoing Regulatory Actions
This case against Uphold is part of a broader initiative by New York to enforce regulations in the cryptocurrency sector. Recently, the state initiated lawsuits against major exchanges Coinbase and Gemini concerning their prediction market offerings, purportedly contravening state gambling laws. In a separate development, the CFTC filed a lawsuit in federal court against New York, contesting the state’s jurisdiction over prediction markets, highlighting ongoing tensions between state and federal regulators in overseeing various facets of the crypto marketplace.
