DeFi Startup Earnity Accused of IP Fraud in Cred Bankruptcy

Decentralized finance (DeFi) startup Earnity has been pulled into the ongoing legal case of crypto lending platform Cred, which filed for bankruptcy in November 2020 with up to $500 million in liabilities. A new court motion accuses Earnity of hiding its ties to Cred in order to steal intellectual property.

In a motion to compel filed last week with the U.S. Bankruptcy Court for the District of Delaware, the trust acting in the interest of Cred lenders said that former Cred executives “secretly conspired” to form Earnity. The new DeFi company, under its beneficial owner Dominic Carosa, then purchased Cred’s electronics, computers and other assets from the trust without disclosing its ties to Cred.

When the trust learned of the connection, Earnity was subpoenaed but only provided a list of Cred employees currently working at the company and one consulting contract.

The trust is investigating whether the former Cred execs “smuggled” intellectual property (IP) to Earnity and then covered the theft with the electronics purchase. The trust has the legal right to all of Cred’s IP.

The trust is asking the court to force Earnity to comply with the subpoenas for additional information and wants financial reimbursement for the related legal costs.

A lawyer for Earnity denied the trust’s claims.

“The assertions made against Earnity are categorically false and designed to extract money from what was a simple hiring of former Cred talent,” said Daniel M. Glassman, an attorney at K&L Gates LLP. “Earnity has a completely different business model and IP that remains entirely unrelated to Cred and will continue to cooperate transparently with the Bankruptcy Court.”

When Cred filed for bankruptcy, the company primarily blamed alleged fraud by an outside investment manager who was entrusted with 800 bitcoin. Former Cred employees, however, told CoinDesk the company was also hurt by a soured $39 million credit line that was extended to a Chinese lender at the behest of Cred CEO Dan Schatt.

In early December, Earnity announced it had raised $15 million in a funding round led by bitcoin mining company BitNile to launch a curated financial marketplace for tokens.

UPDATE (Jan. 4, 13:49 UTC): Added statement from Earnity’s lawyer.