Former crypto firm official was a UK fugitive, bankruptcy examiner says – Livemint

An examiners report filed Monday in the U.S. Bankruptcy Court in Wilmington, Del., said that Cred failed to keep reliable records, properly track customer funds, perform due diligence on the firms investments or uncover the extremely worrisome past" of former Chief Capital Officer James Alexander, who was fired last June.

The firms collapse into bankruptcy was largely due to a dereliction in corporate responsibility," examiner Robert Stark said in his 99-page report. Failures included chaotic and, in some instances, nonexistent diligence, accounting and compliance functions," according to the report.

Cred in bankruptcy filings has blamed Mr. Alexander for some of its financial troubles, accusing him of making off with bitcoin valued at millions of dollars.

A lawyer for Mr. Alexander, Mark Pfeiffer, declined to comment Tuesday. Last month, Mr. Pfeiffer said Mr. Alexander has been portrayed by Cred as a bad actor, but that he has done nothing wrong. He said Mr. Alexanders actions were intended to safeguard the assets of a company affiliate, Cred Capital Inc., at which he had said he was a rightful director.

Mr. Alexander filed for personal bankruptcy last month amid intensifying scrutiny during Creds bankruptcy proceedings of his dealings with the company. He said in court filings in his own bankruptcy case that he and Cred are undergoing a business divorce" and that he transferred the bitcoin to an account he controlled to maintain the operations of Cred Capital.

The examiners report said that Mr. Alexander was convicted in December 2007 in the U.K. for crimes related to illegal money transfers, for which he was sentenced to three years and four months in prison" in England.

At the time of his incarceration, there was a prison break at this facility," the report said. Mr. Alexander has been identified by the U.K. government as a fugitive."

Cred co-founder and former Chief Executive Daniel Schatt said in an email that it appeared that Mr. Alexander had provided false information to the firm to hide his past when it performed a background check before hiring him.

He said Mr. Alexanders actions were the significant contributing factor to what happened to the company and not a dereliction of duty by other senior management, including myself. The company employed highly competent security, finance, product, engineering and operations professionals, and it is highly unfortunate that a professional fraudster was able to evade the companys background check and other security protocols."

Founded by former PayPal Holdings Inc. managers and based in San Mateo, Calif., Cred operated as a financial-services platform to give cryptocurrency holders ways to invest those assets with Cred or borrow against them. After Creds bankruptcy filing last November, the examiner was appointed to look into how and why the firm went under after taking in roughly $135 million in customer funds.

The examiner said currency was allowed to move to overseas entities without the legal setup to retrieve it when needed. Customer assets were commingled without a method for determining which assets were deposited by whom, while certain accounting information kept in spreadsheets wasnt regularly updated, according to the report. The examiner reported the state of Creds records to be disorganized and incomplete." Creds problems largely stemmed from failures in corporate leadership, but Mr. Alexanders participation in poor decision-making is a recurring theme, the report said.

Cred lawyer James Grogan said the examiner mostly addressed events that happened before the bankruptcy. He said the individuals identified by the report as responsible for Creds demise are no longer involved with the company. He said they include Messrs. Alexander and Schatt and Lu Hua, the CEO of Cred before Mr. Schatt and co-founder and co-owner of the company along with Mr. Schatt. Mr. Hua couldnt be reached for comment.

Cred, under the guidance of new management, has successfully utilized the bankruptcy process to propose a chapter 11 plan that offers creditors an efficient and beneficial structure to receive payments on their claims," Mr. Grogan said.

Pending bankruptcy-court approval, a liquidation trust would be set up that would include Creds assets, including its remaining cryptocurrency, and certain legal claims it may pursue.

A liquidation analysis of the business estimated that unsecured creditors would recover about 30 cents on the dollar of what they are owed, according to a Cred bankruptcy filing.

The examiner said Mr. Alexander, despite a court order to do so, hadnt returned all the funds he transferred out of Cred. Cred and its unsecured creditors committee have alleged during the bankruptcy proceedings that Mr. Alexander misappropriated from the firm at least 225 bitcoin, now valued at roughly $12 million, while he worked there. Mr. Alexander has returned roughly 50 bitcoin and $2.8 million in proceeds from liquidated bitcoin, according to the examiners report.

This story has been published from a wire agency feed without modifications to the text.

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Former crypto firm official was a UK fugitive, bankruptcy examiner says - Livemint