New York Attorney General Letitia James has successfully obtained over $5 million in settlement funds from the cryptocurrency platform Uphold. This settlement involves Uphold's promotion of the crypto savings product CredEarn, associated with Cred, LLC. According to the New York Attorney General's office, Uphold promoted CredEarn from January 2019 to October 2020. The product was marketed to users as a reliable crypto savings option through Uphold's platform and mobile app, promising interest payments.
The New York authorities pointed out that Uphold failed to disclose to customers that Cred was using funds to issue high-risk loans to borrowers in China. These borrowers included some low-income video game players who had no credit history and struggled to access banking services.
Additionally, Uphold had claimed to users that Cred had “comprehensive insurance,” but the Attorney General's office found this assertion to be false, stating that there was no insurance in place at the time to protect retail investors from digital asset losses.
It is noteworthy that Cred began to incur losses in its lending operations in March 2020 and filed for bankruptcy later that year, resulting in thousands of Uphold customers suffering losses after investing their digital assets in CredEarn. Under the settlement agreement, Uphold will pay over $5 million directly to affected customers, an amount that is more than five times what Uphold collected in fees from the arrangement. Any funds recovered by Uphold from Cred's bankruptcy proceedings will also be returned to the harmed investors.
The Attorney General's office also noted that Uphold operated without the required broker or commodity broker registration. The settlement documents state that digital assets are considered commodities under New York's Martin Act, and Uphold was not registered when promoting CredEarn.
James stated, “Investors should be able to trust the industry advice they receive.” Uphold disputed some of the Attorney General's claims, with CEO Simon McLaughlin expressing his “deep disappointment” and calling the Attorney General's statements “extremely inaccurate.”
The regulatory pressure on cryptocurrency companies in New York continues to intensify.