New York Attorney General Letitia James has finalized a $5 million settlement with cryptocurrency platform Uphold HQ Inc. The agreement resolves claims that Uphold improperly promoted CredEarn, a yield-generating product operated by a third party, Cred LLC. This marks the first enforcement action by the New York Attorney General’s office specifically targeting a platform that promoted another entity’s crypto yield product, rather than the issuer itself.
Key Takeaways
- Uphold has agreed to pay over $5 million to customers affected by the collapse of CredEarn, a product it promoted from January 2019 to October 2020.
- The New York Attorney General’s office found that Uphold marketed CredEarn as secure without fully disclosing the risks or the source of its yields, which were derived from risky lending practices in China.
- Uphold CEO Simon McLoughlin disputes the Attorney General’s characterization, asserting the company was a victim of Cred’s fraud and that the Department of Justice recognized Uphold as such in a separate criminal case.
- This settlement is notable as it targets the promoter of a crypto yield product, extending regulatory scrutiny beyond the direct issuers.
- Uphold is required to implement enhanced due diligence processes for vetting third-party financial products.
The settlement, structured as an Assurance of Discontinuance under New York’s Martin Act, requires Uphold to acknowledge the Attorney General’s factual findings without admitting legal liability. The investigation revealed that Uphold presented CredEarn as a safe, savings-like investment, omitting details about how Cred generated its returns. Specifically, Cred funneled customer assets into a lending operation via MoKredit, a Chinese microlender, which issued uncollateralized, short-term loans to individuals with no credit history, some as small as $1.45. Furthermore, Uphold relayed Cred’s unsubstantiated claim of carrying “comprehensive insurance,” despite the absence of such retail investor protection in the digital asset market at the time.
Over 6,000 Uphold users invested approximately $50 million into CredEarn through the platform. When Cred collapsed and filed for bankruptcy in November 2020, these investors collectively lost over $34 million. The bankruptcy proceedings for Cred revealed claims totaling $140 million, which were valued significantly higher based on projected future crypto prices. The $5 million payment Uphold agreed to exceeds five times the fees the company earned from promoting CredEarn. Additionally, Uphold must transfer any funds it recovers from Cred’s bankruptcy proceedings, where it is owed $545,189.
Uphold’s Response and Cred’s Collapse
Uphold CEO Simon McLoughlin has publicly stated that the Attorney General’s office has misrepresented the facts and that the settlement does not allege Uphold knowingly promoted a fraudulent scheme. McLoughlin pointed to the U.S. Department of Justice’s findings in its criminal investigation of Cred, which identified Uphold as a victim rather than complicit in the fraud. Uphold also indicated that it took immediate action by freezing Cred’s platform access upon learning of the losses in October 2020 and urged Cred to self-report to regulators. A spokesperson for Uphold noted that only a small fraction of the affected investors, 21 out of over 6,000, were New York residents.
The settlement document highlights that Daniel Schatt, Cred’s former CEO, later joined Uphold’s board. Public records confirm Schatt served on the board of Uphold Ltd. starting in April 2018, before Cred’s collapse. Uphold has clarified that Schatt’s directorship was with a separate entity and that Cred operated independently. Schatt and Cred CFO Joseph Podulka have since pleaded guilty to wire fraud conspiracy and received prison sentences in August 2025. An indictment alleges that by early 2020, Cred had significantly concentrated its assets, lending approximately $40 million to MoKredit, and subsequently used new customer deposits to cover prior redemption requests following a market downturn.
Regulatory Precedent and Future Compliance
This settlement establishes a significant regulatory precedent by extending liability to platforms that promote third-party crypto yield products. The Attorney General’s office determined that Uphold acted as an unregistered broker and commodity broker-dealer under New York law. This legal approach mirrors the strategy employed by the SEC in its 2022 settlement with BlockFi, which focused on the issuer of unregistered securities. Here, the focus is on the promoter’s role in the distribution chain.
The New York Attorney General’s office has actively pursued enforcement actions within the cryptocurrency sector under the Martin Act. Previous significant settlements include a $2 billion agreement with Genesis Global Capital in May 2024 and a $50 million settlement with Gemini in June 2024. Beyond financial penalties, the settlement mandates that Uphold implement a rigorous due diligence framework for evaluating third-party products. This includes mandatory reviews of audited financial statements, insurance policies, internal compliance controls, and direct engagement with independent auditors and industry competitors.
The settlement comes at a time when Uphold is reportedly exploring a potential U.S. Initial Public Offering (IPO), with reports from June 2025 indicating the appointment of FT Partners to advise on a valuation exceeding $1.5 billion. Uphold currently does not serve customers in New York and is in the process of filing for a BitLicense with the state’s Department of Financial Services.
Based on materials from : www.theblock.co