On Dec 6, 2020, the U.S. Department of Justice (DOJ) sought a chapter 11 trustee to seize control of bankrupt cryptocurrency firm Cred Inc. and investigate the reason behind its downfall.
The U.S. Trustee, an arm of the DOJ overseeing U.S. bankruptcy courts, recommended that an independent examiner or trustee be installed to look into the mess at Cred Inc.
DOJ bankruptcy overseers argue that the collapsing crypto investment startup, which serves more than 3 million clients around the world, lacks the capacity to conduct an impartial investigation into its own collapse.
Cred, which is valued at an estimated $50-$100M, filed a bankruptcy petition with the U.S. Bankruptcy Court for The District of Delaware in early November. The struggling firm opted to file for Chapter 11 protection to seek viable options to turn its business around.
Some of the strategies at Cred’s disposal include the sale of its business or its balance sheet restructuring. To this end, the crypto investment company appointed experienced corporate liquidity alternatives expert Grant Lyon to chair the Restructuring Committee during the entire bankruptcy process.
Justice Department bankruptcy watchdogs now plan to bring their takeover petition before the judge overseeing Cred Inc.’s affairs in the U.S. Bankruptcy Court in Wilmington.
Investigating the Collapse Of Cred Inc.
Cred’s woes began with an Oct 28 announcement that the US-based cryptocurrency lending service would suspend all fund inflows and outflows for two weeks.
The platform explained via Twitter that the suspension was necessary to aid authorities in investigating irregularities over the handling of corporate funds by its former chief capital officer.
The perpetrator allegedly seized control of a unit of Cred’s funds meant to help rectify its hedging strategy and later took off with about $3M in BTC.
Following the fraudulent incident involving a top executive, Cred CEO Daniel Schatt opted to file for chapter 11 to maximize value for the platform’s creditors. As per court filings, the crypto investment platform owes investors about $140M.
Following the chapter 11 filing, 15 customers of the crypto lender filed a motion to freeze the firm’s funds as its bankruptcy proceedings dragged on. However, Judge John Dorsey dismissed the motion on Nov 25, citing the need for more evidence of the digital assets’ ownership and status.
“At this point, all I have is the obligation of the debtors to exercise their fiduciary duty to protect the assets of the estate […] all I can do is admonish the debtors,” the judge stated.
Not Your Keys, Not Your Coins
Cred Inc. clients are now left frustrated following the suspension of inflows and outflows from the investment platform. Several users have taken to Twitter requesting the firm to address their funds’ safety, while others are demanding their funds’ immediate release.
Unfortunately, the latest ruling by Judge Dorsey indicates that no funds will be accessible to investors as Cred goes through the long Chapter 11 process, highlighting the meaning behind “not your keys, not your coins.”
Top Crypto exchange OKEx put its users through a similar ordeal after it suspended all withdrawals for about five weeks amid speculations that the police had detained one of its key holders.