Cred is a decentralized lending platform based in San Francisco, California. It facilitates open access to credit based on Ethereum. It was founded by Dan Schatt and Lu Hua in 2017.
On Nov. 7, the company filed for Chapter 11 bankruptcy protection due to alleged fraud committed by its former executive. Cred has an estimated asset between $50-$100 million in assets but $100-$500 million in liabilities.
As stated in a press release, Cred has appointed Grant Lyon to the company’s board to oversee the restructuring process. Also, it has also hired MACCO Restructuring Group as a financial adviser to evaluate M&A and other restructuring opportunities.
Cred has prior suspended withdrawals and deposits in October before filing for bankruptcy.
On Dec. 18, during a preliminary hearing, Judge John Dorsey of the Delaware Bankruptcy Court rejected a motion to appoint a Chapter 11 trustee to oversee Cred’s restructuring. The judge stated that it will only appoint one if Cred equity holders Dan Schatt and Lu Hua will attempt to discharge Grant Lyon. But he appointed an examiner who will give an independent investigation into Cred’s business.
But Cred’s lawyer, Paul Hastings LLP partner James Grogan stated that:
“There’s no evidence that anybody has done anything wrong since the [bankruptcy was filed]. We’re not here to sprinkle holy water on what the debtors did pre-petition. Nobody thinks that this company was well-run or was a model for business schools.”
Judge Dorsey shared his statement after denying the U.S. Department of Justice motion to appoint a Chapter 11 trustee.
“There’s no doubt in my mind that there were shenanigans going on [before the bankruptcy case was filed].”
He has delayed a motion to give chance to UpgradeYa, one of the creditors to retrieve its crypto ahead of the other creditors. The company wants to secure a 2 million loan or 478.17 BTC from Cred (in fiat). This is around 11,000 with bitcoin’s current price at $22,997 as of writing.
Blockchain innovations have paved the way for the DeFi market. Recently, there has been remarkable growth in this market. Decentralized lending platforms, one of the products of DeFi are also on the rise since it offers good profit for investors. But just like any other investment in the crypto market, there are also risks that come with it. Fraud could be one just like in the case of crypto lender Cred resulting in its bankruptcy.