Judge rejects motion to freeze Cred’s crypto assets in bankruptcy case

A U.S. bankruptcy judge has rejected a motion to freeze the assets of beleaguered crypto lending service that was filed by its users.

United States Bankruptcy Judge John Dorsey has denied an emergency motion filed by 15 customers of the embattled crypto lending firm Cred Inc. to freeze crypto assets held by the firm on exchanges amid its Chapter 11 bankruptcy proceedings.

More than a dozen of Cred’s creditors filed the emergency motion on Nov. 23, seeking to compel 21 cryptocurrency exchanges to freeze assets held by Cred on their respective platforms, including five U.S.-based exchanges.

During a Nov. 25 hearing, Dorsey asserted that he could not act on the motion without evidence surrounding the status and ownership of the crypto assets in question, and scolded the investors for their apparent lack of effort put toward tracking down the assets:

“At this point, all I have is the obligation of the debtors to exercise their fiduciary duty to protect the assets of the estate [...] all I can do is admonish the debtors.”

However, the judge noted that issues concerning the freezing of Cred’s assets are likely to be deliberated during the Dec. 9 hearing regarding a Nov. 18 motion from two Cred users requesting the case be converted to liquidation proceedings.

The Nov. 18 filing accuses Cred of operating an “unlicensed hedge fund [...] rife with fraud and deception on ‘Madoff’ level proportions,” estimating that Cred’s liquid assets are equal to just 10% of its $136.5 million in liabilities.

Cred filed for bankruptcy on Nov. 7, describing the move as an attempt “to maximize the value of its platform for its creditors.”

A Nov. 8 declaration from its co-founder and CEO Daniel Schatt claimed that Cred’s former chief capital officer, James Alexander, had absconded with $3 million in Bitcoin (BTC) belonging to its users in July of this year. Schatt also said that 800 Bitcoin worth more than $10 million had been stolen from the company by an imposter hired by its debtors.

The bankruptcy filing came less than two weeks after announcing a temporary suspension of operations.