Cred CCO Was UK Fugitive

Notice: This page is a freshly imported case study from the original repository. The original content was in a different format, and may not have relevant information for all sections. Please help restructure the content by moving information from the 'About' and 'General Prevention' sections to other sections, and add any missing information or sources you can find. If you are new here, please read General Tutorial on Wikis or Anatomy of a Case Study for help getting started.

Notice: This page contains sources which are not attributed to any text. The unattributed sources follow the initial description. Please assist by visiting each source, reviewing the content, and placing that reference next to any text it can be used to support. Feel free to add any information that you come across which isn't present already. Sources which don't contain any relevant information can be removed. Broken links can be replaced with versions from the Internet Archive. See General Tutorial on Wikis, Anatomy of a Case Study, and/or Citing Your Sources Guide for additional information. Thanks for your help!

Cred

Cred was founded with one executive who had a criminal record. They loaned out user's cryptocurrency without providing users with visibility into how they were invested. Finally, after the company went bankrupt, the court allowed the funds to remain outside of a multi-sig wallet, where the executive with the criminal record decided to attempt to run away with it.

Adding up the claims which were searchable online yielded a total of $330,487,071.79 USD in claims filed up to June 18th, 2021.

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

About Cred

"Cred Inc. [was] a centralized cryptocurrency lender." "You don’t have to sell your crypto to cash in on it. Let us put your digital assets to work for you." "Accrue interest regardless of how the market moves. We accept over 15 coins and counting like Bitcoin, XRP, etc. Cred’s insurance coverage is among the most comprehensive in the industry." "We take our cut for insurance, licensing and liquidity, and return the rest to you." "[N]either entity is a bank and no transaction or arrangement provided by either entity is guaranteed or insured by the FDIC or any other governmental entity."

"[C]ryptocurrency wallet and trading platform Uphold terminated its partnership with Cred. Cointelegraph reported that at least one Uphold user had been having technical problems with the platform’s CredEarn program allegedly caused by Cred. Following the dissolution of the Uphold partnership, the user claimed that he had roughly $140,000 in Bitcoin (BTC) and other assets locked in his Cred account."

"Edge integrated the service Cred in [their] application." "Given the custodial nature of the service, Edge went through over a month of due diligence to best understand the product and the team at Cred. [They] met with their leadership team several times both in person and online before feeling comfortable offering their service to our users. Their transparency and known leadership with financial and technology giants like PayPal, Intuit, and Wells Fargo helped gain [Edge's] trust and faith that the [Cred] team had the best intentions with their product and service."

The company "employed UK fugitive and prison escapee James Alexander as the firm’s Chief Capital Officer (CCO)." "On October 27, Cred announced that there had been an incident in the company that negatively affected their balance sheet, including user deposited assets." James Alexander "allowed a significant portion of user deposited funds to be invested [with] a fraudulent asset manager. An asset manager is an entity that provides a yield on lent assets. The asset manager in question was a nonexistent and fraudulent entity." "Cred initiated a federal investigation on this previous staff member and asset manager in an attempt to recover funds. Due to this incident, Cred is no longer able to fulfill its debt to customers." "Cred Inc. filed for bankruptcy in November 2020." "According to court documents, the legal team for Cred CEO Daniel Schatt filed bankruptcy papers for the company in the District of Delaware on Nov. 7."

"In an emailed press release, Cred said Grant Lyon ha[d] been named to the company's board to oversee the restructuring process. It has also hired MACCO Restructuring Group as financial adviser to evaluate M&A and other restructuring opportunities." An "investigation [was conducted] by Delaware bankruptcy court." "March court documents shed light on Alexander’s troubled past, including a three-year prison term for possessing illegal money transfers in the UK. He was later transferred to a facility where he participated in a breakout, leading to his fugitive status. Alexander allegedly funneled over $2 million in both bitcoin and US fiat to his personal accounts."

"Though there were a number of factors leading to Cred’s bankruptcy filing, the platform’s decision to employ UK fugitive James Alexander was a major contributor. CipherTrace supported the investigation by tracing and blocking the flow of bitcoin to James Alexander’s personal accounts, demonstrating the value of blockchain analytics in investigations involving cryptocurrencies."

Back in December, “There’s no evidence that anybody has done anything wrong since the [bankruptcy was filed],” said Paul Hastings LLP partner James Grogan, the attorney representing Cred in the case. “We’re not here to sprinkle holy water on what the debtors did pre-petition. Nobody thinks that this company was well-run or was a model for business schools.”

"In an omnibus preliminary hearing on Friday, Judge John Dorsey of the Delaware Bankruptcy Court rejected a motion to appoint a Chapter 11 trustee to oversee Cred’s restructuring. The judge made the ruling with the caveat that if Cred equity holders Dan Schatt and Lu Hua attempt to fire Cred board member Grant Lyon, who’s in charge of Cred’s restructuring, then the court will step in and appoint a trustee to oversee the bankruptcy. Dorsey also appointed an examiner, who will provide an independent investigation into Cred’s business."

"As set forth in more detail in the Emergency Motion of the Official Committee of Unsecured Creditors (the “Emergency Motion”), filed contemporaneously herewith, the Committee has just been alerted that on January 16, 2021, and January 17, 2021, James Alexander covertly transferred several million dollars’ worth of the Debtors’ cryptocurrency. These transfers were forbidden by a temporary restraining order and preliminary injunction issued by the California state court. Accordingly, the Committee brings the Emergency Motion seeking an order requiring Alexander to post the Debtors’ cryptocurrency in escrow pending the determination of the Adversary Action."

"Unfortunately, this incident makes it unlikely that all users will be able to recover all funds deposited in Cred."

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Cred CCO Was UK Fugitive

Date	Event	Description
October 27th, 2020	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $330,489,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

Effectively providing and managing loans without collateral has a high risk of default. When lending crypto-assets, one has to consider the increased risk that the debt will increase in value due to the deflation of the assets. Therefore, we believe that platforms should generally keep full backing of all crypto-assets, and trading platforms should not engage in lending practices.

When funds are stored, they need to be stored in a multi-signature arrangement which prevents any particular entity from transferring them without the approval of others.

It is also a good idea to conduct background checks on all key holders of a wallet.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.