What has happened to Cred?
Cred filed for protection under Chapter 11 of the U.S. Bankruptcy Code yesterday. The firm is apparently unable to meet its customer obligations owing to a hole in its balance sheet, which we believe results from the alleged actions of a former executive of Cred.
In breach of its contractual and fiduciary responsibilities, Cred failed to inform Uphold about the issue until Uphold contacted the firm on Friday, October 23rd, having been approached that day by a journalist investigating potential issues at Cred.
As a result, Uphold today announces that it plans to sue Cred LLC, the corporate entity, its affiliates, as well as Cred’s founders for fraud, breach of contract, and reputational damage.
Any proceeds Uphold receives from these actions will first be distributed among Uphold customers who have lost money at Cred. Uphold will fund the costs of this litigation.
Within hours of the disclosure on October 23rd, Uphold blocked deposits into Cred to protect Uphold customers, terminated our relationship with the firm, and insisted that Cred inform their regulators and publicly disclose the matter.
Will Cred customers with loans outstanding get their money back?
At this point, it’s impossible to say how much will be recouped by Uphold customers. Any amount will depend on the results of the bankruptcy proceedings.
How can I get more information on the Cred bankruptcy proceedings?
More information can be found here, where you can also sign up for notification emails on any developments in the case.
Why did Uphold partner with Cred?
Uphold partnered with Cred because it had confidence in a highly experienced founding management team, both of whom were Paypal veterans. Dan Schatt led Paypal’s Innovations Group for six years, while Lu Hua was Head of Core Payments, China.
Uphold executives visited Cred’s premises in San Francisco and China many times and were comfortable with the firm’s proposed operating model.
A founding principle of Uphold was to eliminate credit risk by not loaning against Uphold’s balance sheet and thus always being 100% reserved. Instead, Uphold sought a third-party lender to list on its platform so that customers seeking a yield on their assets could choose to commit capital to an independent provider.
What should I do now as a Cred customer with an outstanding loan?
1. Confirm your balance at Cred.
2. Check your contract with Cred and contact an attorney for legal advice. If there is an automatic renewal term, consider opting out of it.
3. Sign up for email notifications concerning the progress of the Cred bankruptcy proceedings here.
4. Keep an eye out for communications from the bankruptcy claims and noticing agent, Donlin, Recano & Company, Inc. Be sure to check your spam folder regularly.
What are you doing to help customers who’ve lost money at Cred?
We’re deeply sorry for everyone who may lose money at Cred and will work tirelessly to help Uphold customers gain satisfactory redress from Cred and its founders.
Many Uphold employees and their families, including our CEO, CTO, and CFO had invested substantial personal sums through Cred, so we share the pain and stress of users who, like us, feel misled and betrayed by Cred.
Given the wrongdoing and lack of disclosure at Cred, as noted above, Uphold is planning to sue Cred.
Any proceeds we receive from these and any other actions we choose to bring against Cred, its affiliates, and principals will first be distributed proportionately among Uphold customers who have lost money at Cred.
Uphold introduced me to Cred and endorsed the firm; aren’t you liable for my losses, too?
Uphold does not provide financial advice and clearly states that it does not recommend any third parties. Cred is an independent firm over which Uphold had no control or influence.
Any Uphold customer who chose to commit capital to Cred signed an agreement with Cred that explicitly made this clear. If you sign a legal agreement, you must expect to be held to the obligations and acknowledgments of the disclosures you’ve accepted. We could not have given more transparent disclosures about our relationship with Cred, and never held ourselves out as a guarantor of funds held with Cred. When linking an Uphold account to Cred, all users were prominently shown the following message:
‘You are leaving Uphold and being directed to a third-party site.The third-party site may have a different privacy policy to Uphold and may provide less security than this site. Uphold and its affiliates are not responsible for the products, services and content of the third-party website. Uphold will have no liability to any transactions entered into by you with or though Cred LLC. Uphold is not a lender, loan broker or loan arranger with respect to the Cred program and is not offering any advice or assistance to any person with respect to the CredEarn or Cred Program.’
While we do not believe that Uphold has any legal obligation with respect to Cred, we feel deep loyalty for our affected customers and a deep sense of moral responsibility for the third-party introductions we make.
As a result, we are taking the unusual step of not just suing Cred LLC and its affiliates, but also the firm’s founders personally so that any proceeds we receive from such actions can first be distributed to our customers who have suffered losses at Cred.
Success in these actions is the only realistic path we see of potentially making good some of the losses that customers may incur.
Why didn’t Uphold warn customers sooner?
We warned customers within hours of first becoming aware of a critical balance sheet shortfall at Cred by blocking new deposits and terminating our commercial relationship with the firm.
What did Uphold know when?
On October 23rd, Uphold became aware for the first time that there was a potential balance sheet shortfall at Cred that may affect the firm’s ability to honour its financial obligations to customers. On that day, it became apparent that Cred had covered the situation up for some months and had attempted to trade itself out of difficulties by attracting more customer deposits.