On July 30, the U.S. Securities and Exchange Commission (SEC), along with the U.S. Attorney’s Office for the Southern District of New York, announced charges against Nader Al-Naji, founder of BitClout (now Decentralized Social). The SEC alleges that Al-Naji ran a fraudulent electronic scheme, a charge that carries a maximum sentence of 20 years in prison if convicted.
Al-Naji began offering unregistered BitClout (BTCLT) tokens in November 2020, raising over $257 million in cryptocurrency.
According to the SEC’s complaint, Al-Naji spent more than $7 million of investor funds on personal expenses, including renting a Beverly Hills villa and giving family members luxury gifts, despite promising investors that the funds would not be used to compensate any BitClout team members.
It also claims that Al-Naji misrepresented the core operations of the BitClout project to avoid regulatory scrutiny. He deceived investors and law firms by portraying BitClout as a decentralized project “with no company behind it,” using the pseudonym “Diamondhands” to create the illusion that the project was autonomous, when in fact he was controlling it.
Furthermore, the SEC complaint points out that Al-Naji allegedly obtained a letter from a prominent law firm, based on his misrepresentations about the nature of his project, stating that BTCLT was unlikely to be considered a security under federal law.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated: “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.”
Additionally, several of Al-Naji’s family members, including his wife, mother, and other associates, are listed in the complaint as relief defendants for allegedly receiving investor funds from him.
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