New York Attorney General Letitia James has secured more than $5 million from the cryptocurrency platform Uphold for allegedly promoting fraudulent investment products.
The settlement centers on Uphold’s promotion of CredEarn, a product offered by Cred, LLC and its CEO, Daniel Schatt. From January 2019 to October 2020, the company marketed CredEarn to users on its platform and mobile app as a safe and reliable savings product with attractive annual interest payments.
However, Uphold did not tell its customers that Cred generated these profits by making small loans to low-income video game players in China, who typically lack credit history and lack access to traditional financial institutions, the attorney general’s office said in a statement.
Source: NY AG James
Mr. Uphold also told customers that Cred carried “comprehensive insurance,” a claim the attorney general’s office found to be false. At the time, no insurance existed in the industry to protect retail investors from losses in digital assets. In addition to misleading advertising, Uphold operated without the required broker and commodity broker-dealer registrations.
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Trust collapse hits supporting users
Cred began accumulating losses in March 2020 due to risky lending practices and filed for bankruptcy eight months later, leaving thousands of Uphold customers around the world in straits, according to the statement.
Under the settlement, Uphold will pay $5 million directly to affected customers, more than five times the fees it collected under the arrangement. The $545,189 in funds that Uphold recovered from Cred’s ongoing bankruptcy proceedings will also be given to affected investors. Affected users will be notified via email once funds reach their account.
“Investors should be able to trust the advice they receive from the industry, and my office will always work to ensure that bad actors who put the financial security of our clients at risk are held accountable,” James said.
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Legal negotiations between New York State and the CFTC
Last month, the state of New York filed a lawsuit against Coinbase and Gemini, alleging that their prediction market services violate the state’s gaming laws.
The CFTC countered, arguing that federal law gives New York exclusive authority over prediction markets, and sued New York in federal court, seeking a permanent injunction to prevent the state from enforcing the market.
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