SEC charges BitClout/Decentralized Social founder with civil securities, wire fraud
The
US
Securities
and
Exchange
Commission
(SEC)
has
filed
charges
against
Nader
Al-Naji,
the
founder
of
the
BitClout
blockchain
protocol,
currently
known
as
Decentralized
Social
(DeSo).
Al-Naji
is
accused
of
orchestrating
a
fraudulent
scheme
involving
the
unregistered
offering
and
sale
of
crypto
asset
securities,
amassing
over
$257
million
from
investors
under
false
pretenses.
In
a
parallel
action,
the
US
Attorney’s
Office
for
the
Southern
District
of
New
York
has
also
announced
similar
charges
against
Al-Naji.
SEC
complaint
The
SEC’s
complaint,
filed
in
the
US
District
Court
for
the
Southern
District
of
New
York,
charges
Al-Naji
with
violating
the
registration
and
anti-fraud
provisions
of
the
Securities
Act
of
1933
and
the
Securities
Exchange
Act
of
1934.
The
complaint
also
names
Al-Naji’s
wife,
mother,
and
wholly-owned
entities
as
relief
defendants
for
the
investor
funds
transferred
to
them.
The
regulator
alleges
that
beginning
in
November
2020,
Al-Naji
raised
substantial
funds
through
the
sale
of
BitClout’s
native
token,
BTCLT.
Investors
were
allegedly
misled
to
believe
that
the
proceeds
would
not
be
used
for
personal
gain
or
to
compensate
BitClout
employees.
Contrary
to
these
assertions,
the
complaint
states
that
Al-Naji
diverted
more
than
$7
million
of
investor
funds
for
personal
expenditures,
including
the
rental
of
a
Beverly
Hills
mansion
and
substantial
cash
gifts
to
his
family.
Evading
scrutiny
In
an
attempt
to
evade
regulatory
scrutiny,
Al-Naji
purportedly
portrayed
BitClout
as
a
decentralized
project
with
“no
company
behind
it
…
just
coins
and
code,”
and
launched
the
project
under
the
pseudonym
“Diamondhands.”
This
strategy
was
intended
to
create
the
illusion
of
an
autonomous
project
when
in
reality,
Al-Naji
had
direct
control
of
the
network.
Furthermore,
Al-Naji
allegedly
secured
a
misleading
opinion
letter
from
a
prominent
law
firm,
based
on
his
misrepresentations
about
the
project,
asserting
that
BTCLT
were
unlikely
to
be
classified
as
securities
under
federal
law.
Despite
this,
he
reportedly
confided
in
select
investors
that
his
actions
were
aimed
at
avoiding
legal
compliance.
SEC
director
Gurbir
S.
Grewal
commented
on
the
case,
stating:
“Al-Naji
attempted
to
evade
the
federal
securities
laws
and
defraud
the
investing
public,
mistakenly
believing
that
‘being
“fake”
decentralized
generally
confuses
regulators
and
deters
them
from
going
after
you.’
He
is
obviously
wrong…”
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