Cred sued Uphold in June 2022 over a jointly promoted crypto yield product called CredEarn.
Crypto exchange Uphold has denied owing around $784 million to the liquidation trust of bankrupt crypto investment platform Cred.
At a court hearing on Jan. 11, Uphold filed a motion to dismiss all counts in the suit served against the firm by Cred in June 2022.
Cred was a crypto lending service that filed chapter 11 bankruptcy in November 2020. In June 2022, Cred’s liquidation trust filed an adversary complaint against Uphold and two affiliates.
It claimed that Uphold worked with Cred co-founders to promote CredEarn and claimed that it owes the crypto lender $783.9 million.
According to the lawsuit, Cred claimed that Uphold worked with Cred’s co-founders to promote CredEarn, claiming that crypto investments channeled from Uphold at the time of the market peak would have been worth upwards of $700 million.
The product promised high yields which lured in retail investors, however, Cred’s investments turned sour leading to customer losses and a bankruptcy filing in November 2020. Cred’s bankruptcy case has similarities to those of Celsius Network and Voyager Digital.
Furthermore, it alleged that Uphold “aided and abetted alleged breaches of fiduciary duties by Cred co-founders Daniel Schatt and Lu Hua and other key Cred officers in connection with the CredEarn program,” according to Law360.
The suit also alleged that Uphold was aware that Cred was “implementing a highly risky hedging strategy and that there was regulatory risk associated with cryptocurrency yield earning programs.”
However, in its motion to dismiss the case, Uphold called Cred trust’s allegations against it “incoherent, conclusory, and conspiratorial,” urging the Delaware bankruptcy court to reject them.
Uphold’s attorney, Zachary Taylor of Baker & Hostetler, told the court “unsupported speculation is all the trust has,” before adding “it makes no sense.”
Uphold denied the allegations it was aware of the risks at Cred, claiming Cred was owned and operated entirely independently. It also claimed that it was unaware of CredEarn’s financial troubles when it promoted the product to Uphold customers.
The motion also argued that it had nothing to do with Cred’s insolvency.
CredEarn “was owned, managed, and operated independently by Cred, and it was internal fraud and mismanagement that caused Cred’s downfall,” it read.
At the hearing, the Cred trust’s attorney, Joseph B. Evans of McDermott Will & Emery, said that “claims against the insiders regarding their collaboration with Uphold had been resolved separately.”
Bankruptcy Judge John T. Dorsey said he wanted to see that settlement agreement, as the court took the matter under advisement.
Uphold is a global multi-asset digital trading platform that claims to have more than 10 million users across 150 countries. It offers trading services for crypto assets, fiat currencies, equities, and precious metals.