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Full title: Response TO THE REPORT OF ROBERT J. STARK, EXAMINER Filed by InnReg LLC (related document(s)605). (Gomez, Oscar) (Entered: 04/12/2021)
Document posted on Apr 11, 2021 in the bankruptcy, 10 pages and 0 tables.
Bankrupt11 Summary (Automatically Generated)
Based solely and ostensibly on an interview with Daniel Schatt2, the Report states that InnReg LLC (“InnReg”) was hired by Cred in 2018 to develop internal compliance protocols addressing information security, privacy, credit risk, and marketing products and that as of June 2020, “no compliance program had been created, let alone implemented.”Cred Inc. (8268), Cred (US) LLC (5799), Cred Capital, Inc. (4064), Cred Merchant Solutions LLC (3150), Cred (Puerto Rico) LLC (3566).InnReg and, specifically, InnReg’s Chief Executive Officer, Francesco Matteini, and Compliance Consultant, Alexandria Degree, worked closely with Mr. Schatt and other members of Cred’s management in developing regulatory compliance protocols for Cred throughout the course of their business dealings.The statement in the Report that InnReg was responsible for developing Cred’s credit risk compliance protocols, and that no compliance programs had been created compliance services that InnReg provided to Cred: • 07/25/2018 InnReg coordinates outside counsel’s legal analysis on lending licensing requirements.On March 15, 2021, the formal written request for revision was sent to Mr. Carty along with enclosures that documented a sample of the various compliance protocols created by InnReg with respect to Cred’s operations along with background information, as well as the timeline given that the statements made with respect to InnReg are immaterial in the grand scheme of Cred’s bankruptcy case.
List of Tables
Document ContentsDISTRICT OF DELAWARE ) In re: ) Chapter 11 ) CRED INC., et al., ) Case No. 20- 12836 (JTD) ) Debtors.1 ) (Jointly Administered) ) CREDITOR INNREG LLC’S RESPONSE TO THE REPORT OF ROBERT J. STARK, EXAMINER The Report of Robert J. Stark, Examiner (the “Report”) was filed on March 8, 2021 with respect to the above captioned bankruptcy cases of Cred Inc., et al. (“Cred”). Based solely and ostensibly on an interview with Daniel Schatt2, the Report states that InnReg LLC (“InnReg”) was hired by Cred in 2018 to develop internal compliance protocols addressing information security, privacy, credit risk, and marketing products and that as of June 2020, “no compliance program had been created, let alone implemented.” This statement, if read without proper context, is inaccurate and disparaging to InnReg’s reputation. The purpose of this filing is to amplify the record, document the subsequent information provided by the Examiner to InnReg, and mitigate the possibility that the minimal references in the Report are taken out of context. BACKGROUND 1 The Debtors in these chapter 11 cases, together with the last four digits of each Debtor’s federal tax identification number, are as follows: Cred Inc. (8268), Cred (US) LLC (5799), Cred Capital, Inc. (4064), Cred Merchant Solutions LLC (3150), Cred (Puerto Rico) LLC (3566). The Debtors’ mailing address is 3 East Third Avenue, San Mateo, California 94401. 2 The Examiner did not contact InnReg as part of its investigation for the Examiner’s Report. InnReg’s principal was not interviewed and no documents were requested from InnReg. Subsequent to the filing of the Examiner’s
1being read as painting a picture that InnReg had been hired to perform work and had not delivered on its promise to Cred. Further, the report specifies that InnReg was tasked with developing internal credit risk compliance protocols for Cred, a company that has filed for bankruptcy. InnReg is a consulting company specialized in building regulatory compliance procedures for technology based financial services companies. InnReg is not in the business of assessing credit risk or developing compliance protocols therefor. No reference to services related to credit risk was included in the consulting services agreement between InnReg and Cred. InnReg and, specifically, InnReg’s Chief Executive Officer, Francesco Matteini, and Compliance Consultant, Alexandria Degree, worked closely with Mr. Schatt and other members of Cred’s management in developing regulatory compliance protocols for Cred throughout the course of their business dealings. InnReg had in fact created regulatory compliance protocols for Cred, regardless of the efficacy of Cred’s management team in implementing such measures. InnReg has record of regular emails and conference call documentation in which the compliance protocols were delivered and discussed directly with Mr. Schatt or other members of Cred’s management. Additionally, in light of Cred’s lack of, or delayed, response to requests to address compliance requirements, in October 2019, InnReg began circulating a weekly compliance report, and holding weekly one-hour calls with Cred’s management, during which the status of outstanding compliance requirements was discussed. During the course of the relationship, InnReg sent approximately 4,949 email messages to Cred or to third parties in relation to Cred, and held approximately 145 scheduled calls with Cred. InnReg was not contacted with regard to Mr. Schatt’s statements made in the interview and published in the Report. The statement in the Report that InnReg was responsible for developing Cred’s credit risk compliance protocols, and that no compliance programs had been created
3Cred website. • 10/03/2018 InnReg instructs the marketing department on the compliance approval process. • 10/12/2018 InnReg begins the New York lending license application. • 10/15/2018 InnReg provides a copy of an AML policy. • 10/19/2018 InnReg reviews a business continuity plan. • 10/18/2019 InnReg reviews certain marketing materials. • 10/24/2018 A training policy is provided to Cred. • 10/26/2018 InnReg begins the Illinois lending licensing application. • 10/26/2018 InnReg begins the Michigan lending license application. • 10/26/2018 InnReg begins the Ohio lending license application. • 10/26/2018 InnReg begins the North Carolina lending license application. • 10/26/2018 InnReg begins the Pennsylvania lending license application. • 10/26/2018 InnReg begins the Georgia lending license application. • 11/02/2018 a compliance management system policy is provided to Cred. • 11/05/2018 InnReg and outside counsel meet to discuss the New York lending license strategy. • 10/31/2018 An EU weekly compliance meeting is started. • 11/07/2018 InnReg begins working on a complaint management policy. • 11/14/2018 InnReg reviews Cred’s underwriting guidelines. • 12/06/2018 InnReg reviews new sections of the Cred website. • 12/13/2018 InnReg provides Cred a credit policy sample document. • 12/17/18 InnReg provides a record retention policy. • 12/24/2018 InnReg provides a compliance review of marketing content. • 01/04/2019 InnReg reviews Cred’s products and operational roadmap. • 01/09/2019 InnReg provides a review of the mobile app screens. • 01/14/2019 InnReg provides a review of FAQs. • 01/18/19 InnReg provides an Equal Credit Opportunity Act policy to state regulators. • 01/18/2019 InnReg coordinates a review of Cred agreements with outside counsel.
4disclosure. • 01/28/2019 InnReg advises on the creation of statement template. • 02/05/2019 InnReg initiates development of Cred’s information security program. • 02/18/2019 InnReg provides the AML/KYC policy to a potential business partner. • 02/26/2019 InnReg coordinates the response to a potential partner’s due diligence questions. • 02/26/2019 InnReg reviews issues related to website ownership. • 03/06/2018 InnReg provides guidance on certain required content for Cred’s website. • 03/03/2019 InnReg provides documentation for the establishment of Cred’s information security program. • 03/19/2019 InnReg provides guidance to mitigate effects of possible hacking. • 03/29/2019 InnReg coordinates the expansion of the AML/KYC policy to cover certain aspects of Cred’s underwriting processes. • 03/28/2019 InnReg hosts a compliance meeting with Cred and outside counsel. • 04/01/2019 InnReg provides E-SIGN disclosure language. • 04/03/2019 InnReg provides an AML procedures amendment. • 04/05/19 InnReg provides monitoring results to Cred’s operations team. • 04/19/2019 InnReg reviews Cred’s training program. • 04/15/2019 InnReg provides feedback on the development of a quality-control program. • 04/18/2019 InnReg reviews Cred’s MLA safe-harbor method. • 04/22/2019 InnReg provides requirements to mitigate AML risk regarding the return of funds. • 04/15/2019 InnReg begins lending license applications for Oregon, Idaho, Montana, and Utah. • 04/25/2019 InnReg participates in a conference call with Cred and state regulators to discuss licensing application. • 05/02/2019 InnReg provides a cybersecurity workbook. • 05/13/2019 Upon discovering that Cred had not performed background checks on employees, InnReg outlines requirements for performing retroactive background checks on employees. • 05/30/2019 InnReg hosts a meeting with Cred and outside counsel to discuss outstanding deliverables identified during the compliance meeting held in March
5bank. • 06/27/2019 InnReg hosts a compliance meeting with Cred and outside counsel. • 07/08/2019 InnReg participates in call/demo with Cred and a provider of blockchain security services. • 07/12/2019 InnReg participates in call with Florida regulators and Cred. • 07/17/2019 InnReg provides identity theft/red flag procedures. • 07/18/2019 InnReg provides remediation steps for a possible phishing incident. • 07/20/2019 InnReg provides list of recommended information securities measures. • 07/22/2019 InnReg audits Cred’s information security policies. • 07/25/2019 InnReg meets with Cred to discuss compliance training, privacy practices, and desktop procedures related to identity theft and fraud. • 08/07/2019 InnReg identifies information securities procedures and documentation to be provided to Cred’s CPA to perform a financial audit. • 08/09/ 2019 InnReg outlines the scope of work for additional information security resources to be hired by Cred. • 08/15/2019 InnReg participates in call with outside counsel, state regulators, and Cred. • 8/22/2019 InnReg reviews a due diligence response package requested by a bank. • 09/04/2019 InnReg meets with an underwriter to discuss Cred’s surety bond needs. • 09/04/2019 InnReg requests update form Cred on a list of outstanding information security-related items. • 09/08/2019 InnReg informs Cred that state regulators are requesting a copy of Cred’s hedging policy as a component of their licensing application review. • 09/18/2019 InnReg hosts a call with Cred to discuss the marketing and advertising review process. • InnReg reviews issues related to utilization of Cred’s computers. • 09/23/2019 and 09/29/19 the following policies are provided to Cred’s General Counsel: AML Policy, E-SIGN Policy, FDCPA Policy, Complaint Management Policy, MLA Policy, Right to Financial Privacy Act Policy, Training Policy, UDAAP Policy. • 9/24/2019 InnReg coordinates discussion with the General Counsel on GLBA applicability. • 9/26/2019 InnReg provides a marketing checklist to the marketing department and informs the General Counsel.
7materials to Cred’s CFO for forwarding to a bank. • 03/03/2020 InnReg requests access to Cred’s operation system to conduct compliance testing. • 03/19/2020 InnReg alerts Cred via the weekly compliance report of certain issues related to the financials provided by Cred to complete the California annual report. • 03/23/2020 InnReg is advised by Cred that as of 03/23/20 that all pledge and loan assets are to be sequestered. • 03/26/2020 InnReg includes company solvency as an item in the weekly compliance report. • 04/10/2020 InnReg coordinates a compliance review of content posted on a messaging application. • 04/13/2020 InnReg is advised that strategy for treatment of all pledge and loaned assets is still being decided by Cred management. • 04/14/2020 InnReg provides a template for responding to a PCC/DSS questionnaire. • 04/17/2020 InnReg provides feedback on perceived shortcomings in the onboarding review of a vendor. • 04/17/2020 Upon InnReg’s request, Cred’s General Counsel schedules a meeting to discuss InnReg’s access to critical records to complete monitoring and testing activities. • 04/22/2020 InnReg reports compliance risks associated with a certain Cred program, and recommends implementing a written exception policy, and standardizing program terms. • 04/23/2020 InnReg provides a servicing policy template. • 05/07/2020 InnReg advises Cred to evaluate the loan program qualification criteria. • 05/08/20 InnReg provides the AML Policy and additional due diligence materials for Cred’s CFO to forward to a potential business partner. • 05/14/20 InnReg begins conducting a compliance risk assessment. • 05/21/2020 InnReg advises on corrections needed to the privacy notice. • 05/29/2020 InnReg advises on required corrections to the KYC and loan files. • 06/04/2020 InnReg is advised during the weekly compliance call of internal documentation related to additional capital raises and associated deadlines. • 06/20/2020 InnReg requests the identification of a person responsible for credit policy and loan approval. • 06/25/2020 InnReg informs Cred via the weekly compliance report of compliance
8customer support communications. • 07/20/2020 InnReg meets with the General Counsel to review InnReg’s risk assessment report. • 07/22/2020 InnReg and Cred’s legal team begin to monitor market manipulation risk. • 07/28/2020 InnReg met with Cred to discuss deficiencies in reporting, decision triggers, and action notices. • 08/05/2020 InnReg meets with the General Counsel to review the risk assessment report. • 08/19/2020 InnReg meets with Cred to discuss monthly statements. • 08/27/2020 InnReg is instructed to update the Solvency line item on the weekly compliance report. • 08/31/2020 InnReg provides the final version of the risk assessment report to Cred. • 09/7/2020 InnReg reviews the anti-manipulation policy. • 09/10/2020 InnReg informs Cred advises Cred on the inclusion of tax-related language in advertising materials. • 09/28/2020 InnReg reviews a proposed business partnership. • 09/28/2020 InnReg provides feedback on monthly statements. • 10/14/2020 InnReg provides a change management policy template. • 10/18/2020 InnReg reviews the credit policy and sales guidelines. • 10/29/2020 InnReg is instructed by Cred to withdraw current lending license applications and investigate process required to surrender existing ones. PRIOR REQUEST FOR REVISION Upon learning of the contents of the Report, Mr. Matteini immediately engaged the undersigned firm. On March 12, 2021, InnReg’s position on the Report was made clear to Andrew Carty, Counsel for the Examiner. At that time, Mr. Carty stated that he would consider reviewing documentation to support revision or amendment of the Report. On March 15, 2021, the formal written request for revision was sent to Mr. Carty along with enclosures that documented a sample of the various compliance protocols created by InnReg with respect to Cred’s operations along with background information, as well as the timeline
9given that the statements made with respect to InnReg are immaterial in the grand scheme of Cred’s bankruptcy case. Mr. Carty also stated that the investigation was short in duration and limited in budget; therefore, interviews were not scheduled with all of Cred’s vendors. On March 29, 2021, the undersigned provided Mr. Carty with a draft of the instant filing to which Mr. Carty advised on March 31, 2021 that the Examiner’s position was that they did not believe that InnReg’s small part in the full Report merited a change and moreover that he did not believe that the few instances where the Report mentioned InnReg were derogatory. The instant filing follows. CONCLUSION It is our position that, with respect to InnReg, the Report is not only incomplete, but also inaccurate, misleading and potentially damaging to InnReg’s business as a result. The statements that InnReg was responsible for creating credit risk compliance protocols, and that no compliance program had been created or implemented between the time of hiring InnReg in 2018 through June 2020, are materially false. This response is filed solely to correct the record and amplify the facts regarding InnReg’s involvement with Cred and to mitigate the image of painted of InnReg in the Report should it be read without the proper context. Dated: April 12, 2021 /s/ Oscar Gomez