SEC Charges Founder of BitClout Blockchain Protocol with Fraud
The US Securities and Exchange Commission (SEC) has taken legal action against Nader Al-Naji, the creator of the BitClout blockchain protocol, now known as Decentralized Social (DeSo). Al-Naji is accused of orchestrating a fraudulent scheme involving the unauthorized sale of crypto asset securities, deceiving investors and collecting over $257 million.
US Attorney’s Office Involvement
In a separate move, the US Attorney’s Office for the Southern District of New York has also brought charges against Al-Naji for similar offenses.
SEC Allegations
The SEC’s complaint, filed in the US District Court for the Southern District of New York, accuses Al-Naji of violating securities registration laws and committing fraud. The complaint also implicates Al-Naji’s family members and businesses for receiving investor funds.
According to the SEC, Al-Naji began raising large sums of money in November 2020 through deceptive means, leading to the fraudulent acquisition of millions of dollars from unsuspecting investors.
The Allegations Against BitClout Founder
An investigation has revealed that the founder of BitClout, known by the pseudonym “Diamondhands,” allegedly misled investors about the use of funds raised through the sale of BTCLT tokens.
Financial Mismanagement
According to the complaint, the founder, Nader Al-Naji, diverted over $7 million of investor funds for personal expenses, such as renting a luxurious mansion in Beverly Hills and giving substantial cash gifts to his family.
Deceptive Practices
To avoid regulatory scrutiny, Al-Naji portrayed BitClout as a decentralized project with no company backing it, using the pseudonym “Diamondhands.” This deceptive strategy aimed to create the illusion of autonomy while maintaining control over the network.
Misleading Legal Opinion
Allegedly, Al-Naji obtained a misleading opinion letter from a prestigious law firm by misrepresenting the nature of the project. The letter falsely claimed that BTCLT tokens were unlikely to be classified as securities, further deceiving investors.
SEC Charges Al-Naji with Violating Federal Securities Laws
The Securities and Exchange Commission (SEC) has filed charges against Al-Naji for allegedly violating federal securities laws. Despite claiming to be decentralized, Al-Naji reportedly admitted to select investors that his actions were aimed at evading legal compliance.
SEC Director Comments on the Case
SEC director Gurbir S. Grewal condemned Al-Naji’s actions, stating that he attempted to defraud the investing public by circumventing federal securities laws. Al-Naji’s belief that appearing “fake” decentralized would confuse regulators was deemed false by Grewal, who emphasized the seriousness of the charges.
Conclusion
The case against Al-Naji serves as a reminder of the importance of complying with federal securities laws. Attempts to deceive regulators and investors will not go unnoticed, and individuals who engage in such practices will face consequences for their actions.
