The New York Attorney General’s (AG) Office announced a $5 million settlement with Uphold HQ Inc. (Uphold), a cryptocurrency platform that allows users to buy, sell, and trade digital assets. The settlement resolves allegations that Uphold misleadingly promoted Cred Inc.’s now‑bankrupt investment product, CredEarn, to its customers as a safe, savings‑style vehicle.
According to AG Letitia James, Uphold marketed CredEarn on its website, app, and in email campaigns between 2019 and October 2020 that involved high-risk crypto lending that the AG claims led to investor losses. According to the AG, Uphold described CredEarn as an exclusive, “revolutionary savings product” and highlighted yields of up to 10% on digital assets, comparing CredEarn favorably to traditional financial institutions. Thousands of Uphold customers invested through the platform, with more than $50 million in cryptocurrency flowing into CredEarn.
The AG claimed that these promotions did not align with the product’s actual risk profile. Cred deployed investor funds through a Chinese micro‑lender, MoKredit, which extended small, short‑term, uncollateralized loans — often at interest rates allegedly exceeding 35% — to video game players with low incomes, no credit histories, and no access to traditional credit. The AG concluded that Uphold did not adequately disclose that CredEarn’s returns depended on this kind of speculative lending, even as it positioned the product as a safe and reliable way to earn interest.
The settlement also targets statements about insurance and investor protection. The AG claimed that Uphold touted Cred as having “some of the most comprehensive insurance offered in the crypto lending sector.” Cred further told investors that it had “comprehensive insurance and security policies to protect your digital assets.” According to the AG, there was no insurance that would protect investors from the investment losses that later occurred.
In addition, the AG determined that Cred’s Enhanced Yield Agreements were investment contracts and securities under New York’s Martin Act, and that digital assets qualify as commodities. By offering CredEarn on its platform, facilitating transactions, and receiving fees from Cred, Uphold was acting as both a broker and a commodity broker‑dealer in New York. The AG found that Uphold failed to register in those capacities and did not qualify for an exemption, making its conduct allegedly a violation of the Martin Act and Executive Law § 63(12).
Key Terms of the Settlement
Under the Assurance of Discontinuance, Uphold agrees to the following key relief:
- Monetary Relief for Investors: Uphold agreed to pay $5 million to customers who suffered losses relating to CredEarn. In addition, the settlement requires that any initial distribution Uphold receives on its approximately $545,000 general unsecured claim in Cred’s bankruptcy will be added to the settlement pool for affected investors.
- Reimbursement Process: Uphold will create a segregated reimbursement account, identify eligible investors in coordination with the AG, and notify them via email of their right to receive reimbursement. Eligible investors will be able to accept funds through their Uphold accounts and withdraw those funds for a set period without fees.
- Registration and Restrictions: Uphold agreed it will no longer offer or sell unregistered, nonexempt securities or commodities, including digital assets, within or from New York unless it complies with state broker and commodity broker‑dealer registration requirements.
Why It Matters
This settlement reinforces several themes in state attorneys general enforcement actions in the digital asset space:
- Retail‑facing crypto products are under a consumer‑protection lens. When platforms market yield‑generating products as “savings” or “safe” alternatives, regulators will examine whether the marketing accurately reflects the true risk profile and underlying strategy.
- Insurance and safety claims carry heightened risk. Statements suggesting that investors’ digital assets are “protected” or “comprehensively insured” are likely to be scrutinized, especially where investment‑loss insurance does not exist or cover losses.
- Platforms are responsible for partner diligence. Firms that feature or recommend third‑party products should not rely on their partners’ descriptions. Robust, documented due diligence — particularly around risk management, conflicts of interest, and deployment of investor funds — is increasingly an expectation.
- State registration obligations are central. As states treat many digital asset products as securities or commodities, platforms must carefully assess whether their activities trigger broker or commodity broker‑dealer registration requirements under state law.
For crypto platforms and other intermediaries, the Uphold settlement is a reminder that state attorneys general will continue to leverage laws like the Martin Act to police marketing, disclosure, and registration practices — especially when regulators perceive significant undisclosed risk to retail investors.