Insolvent Lending Platform Cred Fraudulently Transferred Bitcoin to a Whale

Crypto lending platform Cred reported suspected fraud by an external investment manager charged with 800 BTC when it filed for bankruptcy in November 2020. At that time, its debts were around 500 million dollars. Former employees said Cred was hurt by the failure of a $39 million line of credit the lender extended to a Chinese company.

The truth

New court documents filed by Cred Trust, an entity representing Cred’s debtors, reveal evidence of a fraudulent transaction. Apparently, Cred paid a whale and a consultant called Winslow Carter Strong a large amount of bitcoins (516, worth around $21 million today) for a bond that was basically worthless, CoinDesk reported.

Darren Azman, an attorney representing the Cred Liquidation Trust, told CoinDesk in an email:

“It is a fundamental tenet of bankruptcy law that an insolvent company cannot transfer assets in exchange for any value. That is exactly what happened here. The Trust has already located and recovered a significant amount of cryptocurrency for the benefit of creditors and will continue to be aggressive in these efforts.

The road to insolvency

According to the new evidence, Strong and Cred developed a relationship in early 2020. The former promised Cred that he would recommend wealthy crypto investors to them, claiming to be a “crypto whale” with strong ties to Puerto Rican crypto at high net worth. community.

Cred also approached the whale to invest with them at CredEarn. They agreed that Strong would lend them 500 bitcoins at an interest rate of 9%.

A new and “better” opportunity

Cred also approached Strong with another proposal just before the CredEarn deal closed. They asked him to buy a bond from Income Opportunities, which they called a “remote entity in the event of bankruptcy”.

Apparently, Strong knew Cred was facing bankruptcy, in part because of a classified document that Cred executives provided to another partner. He thought bonds were a safer approach than lending CredEarn money.

Eventually, Strong bought a note from Income Opportunities by transferring the bitcoin he was lending to CredEarn. Several months after that, Cred bought the ticket back from Strong for around 516 bitcoins. At that time, Cred was already on the road to insolvency.

They filed for bankruptcy a few months later. They had compensated the consultant and the whale, but most of their other investors were left behind.

The future of Cred

The Cred Trust is currently investigating Cred’s consultant payments to Strong and the extent to which Strong was involved in the business practices that led to the insolvency.

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