Crypto platform Uphold to pay $5M for promoting risky investments

A cryptocurrency platform will pay $5 million to settle an investigation alleging the company promoted an investment product that made risky loans at high interest rates. 

New York Attorney General Letitia James reached the settlement with Uphold HQ Inc. on Tuesday, saying the company sold cryptocurrency without registering as a broker-dealer in violation of state law, according to a copy of the settlement agreement.

Uphold entered into an agreement in 2018 with Cred, LLC to advertise one of its products to Uphold customers, offering them a chance to invest their digital assets such as cryptocurrencies. Instead, Cred lent that money, mainly, to another company that made risky, short-term microloans ranging from $1.45 to $290 to “Chinese video gamers” with no credit histories, at interest rates “often exceeding 35%,” the settlement alleged.

“Uphold promoted risky investments and misled its customers to believe they were safe,” James said in a statement.

The Attorney General’s office estimates that 2,200 investors will get a payout. Two former Uphold investors are based on Long Island, though it's unclear if they will get some of the funds, according to the office.

Cred filed for bankruptcy in November 2020, according to court records. 

Uphold has offices in New York City, San Francisco and Canada, according to its website.  

Simon McLoughlin, Uphold’s CEO, said the company was duped by Cred, and did its best to protect its customers.

“Uphold acted with integrity throughout its relationship with Cred LLC, a third-party lending firm that ran into financial difficulties in 2020,” McLoughlin said in a statement. “As soon as Uphold became aware of the issues at Cred, we demanded that Cred notify its regulators, shut down access to the service, and acted to protect our customers immediately.”

Uphold will be required to notify investors of the payout via email and distribute the funds within the next 180 days, per the settlement.

An attorney for Cred, LLC did not immediately respond to a request for comment.

In 2019, Uphold offered its users a chance to invest funds, including cryptocurrency, through CredEarn, the settlement states. Uphold promoted CredEarn on its website and through its newsletter, calling it a “revolutionary savings product.”

More than 6,000 Uphold customers invested about $50 million in cryptocurrency into CredEarn through October 2020, according to the settlement.

Cred and Uphold advertised that Cred had “comprehensive insurance” to protect investor money, but, according to the settlement, “no insurance existed.”

The money was mainly lent to another company: the Chinese microlender MoKredit.

According to the settlement, Uphold knew that MoKredit lent the funds, including to “young adults in their 20s and 30s” with “low monthly incomes, no credit histories, and no access to credit through traditional Chinese financial institutions."

MoKredit failed to repay the debt to Cred in March 2020, according to the settlement, and Cred declared bankruptcy in November 2020, according to court records.

MoKredit could not immediately be reached for comment.