From being exposed to fraud to filing for bankruptcy protection in the State of Delaware, in just half a month, the once-popular crypto lending platform Cred “collapsed.” What happened to Cred? Why does partner Uphold plan to sue Cred and its affiliates and company founders? The chain news will take you at a glance.
Cred filed for bankruptcy protection
According to a press release issued by Cred, on November 8, Cred and all of its subsidiaries voluntarily applied to the Delaware Bankruptcy Court for Chapter 11 bankruptcy protection in order to explore strategic alternatives, including but not limited to Reorganize the balance sheet or seek business sale under the supervision of the court.
Wikipedia information displayed in the “United States Code” in Chapter 11, the debtor financing and reorganization plan within 120 days after filing for bankruptcy protection have the right, there are opportunities to enable enterprises to continue to operate its business, or to receive or intends to seek Asset companies to avoid direct bankruptcy by creditors against the company. The purpose of the restructuring plan is to enable major stakeholders, including debtors and their creditors, to reach voluntary compromises. If the creditors all agree to the reorganization plan and get the approval of the judge, then the plan can be confirmed. Chapter 11 bankruptcy will lead to three outcomes of the debtor: reorganization, transfer to Chapter 7 bankruptcy (the debtor goes through bankruptcy liquidation) or is rejected.
In the bankruptcy protection application information submitted by Cred, the assets listed by Cred are estimated to be between 50 million and 100 million US dollars, the liabilities are between 100 million and 500 million US dollars, and the estimated number of creditors is 5,001 to 10,000. Among them, the unsecured claims of Cred’s top 30 unsecured creditors (not insiders) alone amounted to more than US$68 million.
Cred explained that its technology platform has provided services to customers in more than 100 countries or regions around the world, so it intends to use the Chapter 11 bankruptcy protection process to maximize the interests of creditors.
Dan Schatt also stated in the telegram group that Cred will evaluate several options for selling the company or company assets, restructuring, and asset liquidation .
In response to the restructuring measures, Cred appointed a new company independent director Grant Lyon, who will serve as the chairman of the company restructuring committee to oversee the restructuring process. Grant Lyon has more than 30 years of experience in corporate restructuring, providing expert testimony, and corporate governance. In addition, Cred has hired Paul Hastings as its legal advisor and MACCO Restructuring Group as its financial advisor to evaluate mergers and acquisitions and other restructuring opportunities.
Cred is in a court dispute with the company’s former executives
Cred’s application for bankruptcy protection is not groundless. In the past few months, Cred has also been involved in a court dispute with a former executive of the company.
According to Bloomberg reports , Cred, “said the platform was deceived former chief capital officer James Alexander, who allegedly controls a division, then also” swept US $ “3 million bitcoins, bitcoin these companies could have been prepared to help Adjust the hedging strategy. “
According to court documents, Cred owes its users approximately $140 million. Specifically, in March, Cred sought to establish a new entity called Cred Capital. Cred CEO Dan Schatt said that Cred had planned to control Cred Capital, but James Alexander tried to make it an independent director and gave Cred Capital’s voting rights to an external investor, who ultimately did not inject capital into the company. The court document stated that Alexander did not use the Bitcoin loan provided by Cred consultant Lu Hua to develop a new hedging strategy.
Therefore, Cred fired Alexander in June. In view of this, Alexander transferred approximately $3 million worth of bitcoins to his private wallet and refused to return it. Since then, Cred sued Alexander in a California court.
But Alexander said that Cred Capital has always been an independent company with its sole director, and because of disagreements, Cred dismissed it.
The impact of the court dispute between Cred and his former executives began to show in October.
An Uphold user who uses Cred’s wealth management product CredEarn told Cointelegraph that it encountered obstacles to withdrawals for the first time on October 15. At that time, Uphold reported that the problem was caused by Cred.
On October 23, Uphold learned that Cred’s balance sheet might have a gap and decided to terminate the partnership with Cred. Uphold also pointed out that , Cred seems to have been affected former employees, this former employee was accused of stealing money and be bad investments. In addition, Uphold also removed Dan Schatt from its designated board members.
Soon afterwards, Cred turned on the mute function in the telegram group, and the mute status has not been lifted so far.
On October 28, Cred told Coindesk that Cred had encountered fraudulent violations in handling specific corporate funds and is currently cooperating with law enforcement agencies on this matter. In addition, Cred’s balance sheet was also negatively affected. The legal counsel recommended that Cred temporarily suspend the inflow and outflow of funds related to its financial management product CredEarn plan.
Cred further response , said , “I’m sorry attracted wide attention .Cred in assessing the business impact of fraud related to the recent events in cooperation with law enforcement authorities investigating the incident. Does not have any customer personal data or account information was leaked. The next two weeks Provide the latest progress. During this period, all inflows and outflows of funds have been suspended.” In addition, Cred clarified that it has not been hacked and that the Cred system, customer accounts and customer information have not been leaked.
At present, although Cred has not disclosed the severity of the fraud encountered, Cred’s voluntary application for bankruptcy protection is enough to prove that Cred’s current situation is not optimistic.
How did the cooperation platform react?
On October 23, within a few hours after learning that Cred’s balance sheet may have a gap, the crypto financial platform Uphold, which has a close cooperative relationship with it, informed its customers of its decision to terminate the partnership with Cred. This move means that both Cred and Uphold users will now be affected because they will no longer be able to transfer funds from the Uphold wallet to Cred, nor can they view their Cred balance on Uphold’s platform.
On October 26, Uphold announced that it would no longer support LBA, that is, users cannot buy LBA on its platform, but sales and withdrawals have not been affected.
And today, Uphold after learning Cred filed for bankruptcy protection , said it is clear that there are loopholes in the Cred balance sheet, leading to its inability to perform customer obligations, and after asking about potential problems, their Cred not immediately disclosed. Therefore, Uphold plans to sue Cred and its affiliates and company founders on the grounds of breach of contract, fraud and reputation damage , and the requested proceeds will first be distributed proportionally to Uphold users who have lost money in Cred.
What kind of platform is Cred?
Cred (formerly Libra Credit) was founded in 2017 by former PayPal executives Lu Hua and Dan Schatt. Libra Credit is a decentralized lending system based on Ethereum, which was rebranded as Cred. Lu Hua was the core payment leader of PayPal China, mainly responsible for managing the global PayPal bank payment settlement platform. Dan Schatt served as the general manager of PayPal’s financial innovation department, leading the team to be responsible for PayPal’s various innovative businesses in the banking and payment industry, and currently serves as the CEO of Cred.
Since then, Cred gradually developed into a global financial services platform to provide digital currency lending and financial services, and in October 2019 to obtain loans in California license , providing loans based encryption currency services to California.
According to Crunchbase disclosure of information , Cred to raise a total of $ 30 million, in April 2018 LBA tokens an initial public offering (ICO) to raise $ 16 million through. Prior to the ICO, Cred also completed two rounds of venture capital at the end of 2017 and April 2018, raising US$2 million and US$12 million, respectively, led by FBG Capital.
In addition, in July 2018, Cred also received investment from Binance Labs, the incubator of Binance.
According to the information on the official website, Cred mainly provides two products: CredEarn, a wealth management product, and CredBorrow, a loan product. CredEarn currently accepts BTC, XRP and other cryptocurrency mortgage services, allowing users to earn interest through mortgages. The loan product CredBorrow will lend these mortgage assets to customers with good credit, such as retail borrowers, crypto investment funds, digital asset companies, crypto miners, and money managers. The annual interest rate of loans provided by Cred is less than 10%, and the assets are encrypted Custodian BitGo guarantees.
Holders of Cred platform token LBA can not only use various products released by Cred, but also obtain service upgrades of Cred products, including raising financial interest rates and lowering lending rates.
Cred’s current partners include Bitcoin.com, decentralized wallet Edge, Tron Wallet Klever (TronWallet), Huobi Wallet, asset tokenization platform TrustToken, Litecoin Foundation, Canadian crypto exchange Bitbuy, European crypto exchange Virtuse Exchange, etc.
In addition, the main members of Cred’s team include CEO Dan Schatt, consultant Lu Hua, and chief scientist Howard Wu.
Cred consultant Lu Hua’s company mo9 is involved in credit services
It is noteworthy that, according to corporate look up information display , Lu Hua also owns a Chinese Internet consumer financial services provider, the company name Mount interest (Shanghai) Information Technology Co., Ltd., the English called mo9, Lu Hua for the company’s legal Representative, also serves as chairman and general manager. One of mo9’s core products is “Play Now, Pay Later” and has accumulated 30 million paying users.
mo9 was established in August 2013 with a registered capital of 6.8 million U.S. dollars and a paid-in capital of 1 million U.S. dollars. The number of employees is less than 50. The registration authority is the Shanghai Administration for Industry and Commerce, and the venture capital firm Sequoia Capital, Germany Bertelsmann Fund, Intime Capital Investment, has completed C round of financing.
mo9 business license information, source: Enterprise Check
The major shareholder and actual controller of mo9 is moKredit Technology (Hong Kong) Company Limited. The latter was established in July 2012, registered in Hong Kong, and is a wholly-owned shareholder of mo9.
Mo9 Equity Penetration Chart, Source: Enterprise Check
Information mo9 official website disclosed display , is an online game and virtual goods to play first post-paid service providers, simply recharge the phone number to complete the game, support bank card, prepaid recharge cards, Paypal, money paid through other online , Offline recharge methods, as well as various incentive modes such as recharge rebates. However, the official website information is abnormal, registration cannot be performed at present, and multiple page functions cannot be opened. The company’s dynamic update is as of May 2015.