On Tuesday, Nader Al-Naji, the creator of open-source blockchain-based social media platform BitClout, came under fire from both the US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for his involvement in an alleged “multi-million dollar fraudulent crypto scheme” involving the BitClout platform and its native token, BTCLT.
Allegations Against BitClout Founder
The SEC’s complaint paints a troubling picture of Al-Naji’s actions, alleging that since November 2020, he raised over $257 million through “unregistered offers” and sales of BTCLT, deceiving investors by falsely assuring them that the proceeds would not be used for personal gain.
However, the complaint reveals that Al-Naji purportedly diverted more than $7 million of investor funds towards personal expenses, including “extravagant gifts” and rental payments for a mansion in Beverly Hills.
To further complicate matters, the SEC’s complaint suggests that Al-Naji went to considerable effort to portray BitClout as a decentralized entity with no central authority, hiding behind the pseudonym “Diamondhands” to maintain the illusion of autonomy.
Al-Naji allegedly obtained legal opinions supporting the non-securities status of BTCLT by reportedly misrepresenting the project’s “true nature,” while simultaneously disclosing his alleged “deceptive practices” to select investors in secret.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the gravity of the situation, stating that Al-Naji’s attempts to avoid securities laws and mislead investors would not go unchecked.
Grewal further stated in the release:
He is obviously wrong: as we have shown time and again, and as reflected in the SEC’s detailed allegations here, we are guided by economic realities, not cosmetic labels. The dedicated staff of the SEC uncovered Al-Naji’s lies and will now hold him accountable for misleading investors.
Regulatory Storm Brews
The legal implications of these allegations are stark, with the SEC’s complaint filed in the US District Court for the Southern District of New York charging Al-Naji with violations of securities registration and anti-fraud provisions dating back to the Securities Act of 1933 and the Securities Exchange Act of 1934.
Additionally, Al-Naji’s wife, mother, and associated entities have been named as relief defendants for funds allegedly transferred to them from investor contributions in the SEC’s complaint released on July 30.
Self-described crypto lawyer Preston Byrne has weighed in on the situation, highlighting past warnings about Al-Naji’s activities, including his involvement in the alleged Basis Ponzi scheme in 2017 and claims about BitClout’s decentralization, which is now under scrutiny by regulators, including the Department of Justice.
How many years Al-Naji could receive if found guilty in a court of law was not disclosed by the agency in the release, pending further disclosure and the start date of the trial.
Featured image from DALL-E, chart from TradingView.com
