The US Securities and Exchange Commission (SEC) recently made headlines by filing charges against Nader Al-Naji, the founder of the BitClout blockchain protocol, now known as Decentralized Social (DeSo). The SEC accuses Al-Naji of orchestrating a fraudulent scheme involving the unregistered offering and sale of crypto asset securities, resulting in the amassing of over $257 million from investors under false pretenses.
In addition to the SEC’s actions, the US Attorney’s Office for the Southern District of New York has also announced similar charges against Al-Naji. The SEC’s complaint, filed in the US District Court for the Southern District of New York, alleges that Al-Naji violated the registration and anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint includes allegations that Al-Naji diverted more than $7 million of investor funds for personal expenses, such as renting a Beverly Hills mansion and giving substantial cash gifts to his family.
Beginning in November 2020, Al-Naji reportedly raised substantial funds through the sale of BitClout’s native token, BTCLT, with investors being misled about the use of proceeds. The complaint states that investors were under the impression that the funds would not be used for personal gain or to compensate BitClout employees. However, Al-Naji allegedly diverted a significant portion of the funds for his personal use, contrary to these representations.
To evade regulatory scrutiny, Al-Naji purportedly presented BitClout as a decentralized project with “no company behind it … just coins and code.” He operated under the pseudonym “Diamondhands” to create the appearance of a project without centralized control when, in reality, he exercised direct authority over the network. Additionally, Al-Naji is accused of obtaining a misleading opinion letter from a prominent law firm by misrepresenting the project to assert that BTCLT was unlikely to be classified as securities under federal law. Despite this, he allegedly admitted to select investors that his actions were motivated by a desire to avoid legal compliance.
It is evident from the SEC’s charges that Nader Al-Naji faces serious allegations related to fraud, misrepresentation, and misuse of investor funds. This case serves as a cautionary tale about the importance of transparency, honesty, and regulatory compliance in the cryptocurrency and blockchain industry. The outcome of this legal battle will undoubtedly have far-reaching implications for both Al-Naji and the broader crypto community.