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…”
