The Securities and Exchange Commission (SEC) has charged BitClout founder Nader Al-Naji with orchestrating a multi-million-dollar fraudulent crypto asset scheme through his cryptocurrency trading and social media platform called BitClout and its native token, BTCLT.
The SEC said in its compliant that the Al-Naji, lied to investors about where their funds went and spent more than $7 million on personal items.
The complaint also names Decentralized Social (DeSo), another project by Al-Naji, highlighting the SEC’s concerns about both ventures.
SEC Charged BitClout Founder with Fraud and Sale of Unregistered Securities
According to the SEC’s complaint, Al-Naji, known pseudonymously as “Diamondhands,” raised over $257 million from unregistered offers and sales of BTCLT starting in November 2020, misleading investors by claiming that the proceeds would not be used for personal gain.
However, court documents reveal that Al-Naji misled investors about how to use these funds, diverting over $7 million for personal expenses, including renting a Beverly Hills mansion and giving extravagant cash gifts to family members.
Additionally, Al-Naji allegedly mischaracterized the decentralized nature of the BitClout project as a project with “no company behind it … just coins and code” and launched the project under the pseudonym “Diamondhands” to create the illusion of autonomy.
Al-Naji was arrested on Saturday and presented to a magistrate judge in California on Monday, 29th July.
The SEC’s complaint, filed in the U.S. 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.
In response to SEC naming DeSo in the ongoing case, Jordan and Luke Lintz, founders of HighKey Agency and investors in the DeSo project, stated that the SEC’s allegations were specifically against BitClout and assured that the DeSo treasury remains untouched.
They also distanced themselves from Al-Naji’s personal actions, indicating they were unaware of the alleged misuse of funds.
BitClout Founder Al-Naji facing Another Count of Wire Fraud facing up to 20 years in Prison
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that Al-Naji attempted to deceive regulators and the public, but the SEC’s investigation uncovered his fraud, and he will be held accountable.
“As alleged in our complaint, 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.”
Notably, several members of Al-Naji’s family, including his wife and mother, are named as relief defendants for the investor funds transferred to them by Al-Naji in the SEC’s lawsuit.
The US Attorney’s Office of Southern District of New York has also filed parallel criminal charges against Al-Naji, including one count of wire fraud, which carries a maximum sentence of 20 years in prison if convicted.
Launched in early 2021, BitClout was promoted as a proof-of-work blockchain designed to run and monetize social media. The project was controversial from the start, with profiles of big names in the crypto space created without their consent and their Twitter profiles scraped and copied onto the BitClout site.
Critics argued that BitClout’s model incentivized cancelling users by allowing people to open short positions and then damage someone’s reputation.
Additionally, financial concerns arose as users needed to trade bitcoin for BTCLT to use their BitClout profiles, but there was no way to trade BTCLT back to BTC on BitClout’s site, effectively trapping their money on the platform.