New York Forces Uphold to Pay $5M in Crypto Fraud Scheme

New York’s top prosecutor has secured a settlement with Uphold over the platform’s promotion of a crypto-backed savings product, CredEarn. The agreement centers on allegations that Uphold marketed CredEarn as a safe, reliable vehicle for interest-bearing returns while omitting material details about how those returns were generated and whether appropriate regulatory protections applied. The settlement requires Uphold to compensate affected users and imposes ongoing obligations as part of the state’s broader push to police crypto-related promotions.

The inquiry focused on CredEarn, a product offered by Cred, LLC and its chief executive, Daniel Schatt. Between January 2019 and October 2020, Uphold marketed CredEarn to users on its platform and mobile app as a dependable savings option with attractive annual yields. However, the attorney general’s office contends Uphold did not disclose that CredEarn’s returns were funded by microloans extended to low-income video game players in China—borrowers with little to no credit history and limited access to traditional financial services. In essence, the advertised safety and reliability were portrayed without the full picture of the underlying risk and credit structure.

The investigation concluded that Uphold’s promotion included a claim of “comprehensive insurance” backing CredEarn, a representation the AG’s office found to be false. There was no such insurance coverage protecting retail investors from digital asset losses at the time. In addition, Uphold operated without the required broker-dealer or commodity broker-dealer registrations, raising compliance concerns beyond misrepresentation.

Key takeaways

• Uphold must pay $5 million directly to affected CredEarn customers, a sum that exceeds five times the fees Uphold earned from promoting the product.
• Any funds recovered by Uphold from Cred’s ongoing bankruptcy proceedings (Cred, LLC was owed roughly $545,189 in those proceedings) will be redistributed to harmed investors.
• The case highlights the risk of yield-generating crypto promotions and the importance of clear disclosures and proper regulatory registration for platforms offering investment-like products.
• New York’s actions reflect a broader regulatory mood toward crypto marketing, aligning state-level oversight with federal scrutiny in related areas.
• Investors and platform users should watch how restitution is distributed and what reforms Uphold must implement to prevent similar misrepresentations in the future.

CredEarn, the lending model, and Uphold’s obligation

CredEarn was positioned as a straightforward savings option within Uphold’s ecosystem, but the arrangement depended on a lending model that connected CredEarn to microloans manufactured for Chinese borrowers described as low-income and lacking robust credit histories. The model, according to the attorney general’s findings, generated the advertised yields by channeling funds into these microloans rather than through stable, clearly insured products. This structure raised questions about risk transparency for retail customers who relied on Uphold’s assurances of safety and legitimate insurance coverage.

Cred’s financial trajectory worsened as the lending practices produced losses starting in March 2020. Within eight months, Cred filed for bankruptcy, leaving thousands of Uphold users exposed to losses tied to the CredEarn arrangement. The settlement’s framework directs Uphold to compensate affected customers directly, while any recovery from Cred’s bankruptcy estate will be funneled to harmed investors. Customers affected by the scheme will receive email notice when restitution funds arrive, underscoring the administration’s emphasis on direct remediation for those who trusted the platform’s marketing.

Regulatory context and market implications

The New York action arrives amid a broader pattern of regulatory activity aimed at crypto platforms that offer investment-like incentives or promising yields. In a related development, New York pursued separate litigation against Coinbase and Gemini over the legality of prediction-market-like offerings under state gambling laws. In parallel, the U.S. Commodities Futures Trading Commission has challenged New York’s stance on certain crypto-market activities, arguing that federal law reserves authority over prediction markets. The convergence of these actions signals heightened scrutiny of how crypto products are marketed, registered, and regulated at both state and federal levels.

For investors and crypto users, the Uphold settlement reinforces several practical takeaways. First, even products marketed with the veneer of safety may carry complex credit and liquidity risks that are not always transparently disclosed. Second, the absence of proper broker-dealer registration can complicate accountability and recourse. Third, when a platform assists in marketing a product tied to external lending arrangements, it bears responsibility for ensuring that claims about insurance or other protections are accurate. Lastly, the evolving regulatory landscape means future settlements and enforcement actions could redefine how crypto platforms structure and disclose investment-like offerings.

As Cred’s bankruptcy proceedings continue to unwind and restitution channels take shape, readers should monitor how the distribution of funds unfolds and what new compliance standards Uphold and similar platforms adopt going forward. The case also underscores the ongoing tension between rapid product innovation in crypto and the safeguards that traditional financial markets rely on to protect retail investors.

What remains uncertain is how broadly regulators will apply these precedents to other marketing campaigns across crypto platforms and whether additional settlements or enforcement actions will compel deeper changes in product design, disclosure practices, and registration requirements. Traders, users, and builders should stay attentive to regulatory updates and the evolving frameworks that will shape the availability and credibility of crypto-based yield products in the months ahead.

Source: New York Attorney General’s office. For context, the AG’s announcement and related materials are available via the agency’s press release and social channels, including coverage of the case. Source: NY AG James Twitter post.