New York orders Uphold to pay $5M over CredEarn

New York Attorney General Letitia James secured a settlement requiring cryptocurrency platform Uphold to return more than $5 million to customers after finding the company promoted CredEarn as a safe, insured savings product while failing to disclose how returns were generated.

From January 2019 through October 2020 Uphold marketed CredEarn on its website and mobile app as a way for users to earn attractive annual interest. The Attorney General’s office found Uphold did not tell customers that Cred, LLC produced those returns by making short-term loans to low-income video game players in China who often lacked credit histories and access to traditional banking.

The office also concluded Uphold’s claim that Cred offered “comprehensive insurance” was false. At the time, no protection existed that insured retail investors against losses in digital asset products. The state found Uphold promoted the product without the broker or commodity broker-dealer registrations required for such offerings.

Cred began suffering losses from its lending activities in March 2020 and filed for bankruptcy eight months later, leaving thousands of Uphold customers with losses tied to the product.

Under the settlement Uphold will pay $5 million directly to harmed customers, an amount the Attorney General’s office said is more than five times the fees Uphold collected from its arrangement with Cred. Any funds Uphold recovers from Cred’s bankruptcy estate, where Uphold is listed as owed $545,189, will be passed on to affected users. Customers will be notified by email when money is credited to their accounts.

In a statement Letitia James wrote, “Investors should be able to trust the industry advice they receive. My office will always work to ensure bad actors are held accountable for endangering their customers’ financial security.”

The settlement follows other state enforcement actions in New York. Last month the state sued exchanges over prediction market products; the Commodity Futures Trading Commission then filed a federal suit against New York, arguing federal law gives it exclusive authority over those markets.

The Attorney General’s office said the Uphold settlement is intended to return funds to investors who were misled about product safety and insurance and to reinforce registration and disclosure requirements for platforms that promote third-party crypto products.