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 assets, collecting more than $257 million from investors under false pretenses.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York 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, accuses Al-Naji of 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 entities wholly owned by Al-Naji as defendants for the investor funds transferred to them.
The regulator claims that as of November 2020, Al-Naji raised significant amounts of money through the sale of BitClout’s native token, BTCLT. Investors were allegedly misled into believing that the proceeds would not be used for personal gain or to compensate BitClout employees.
Contrary to these claims, the complaint alleges that Al-Naji diverted more than $7 million in investor funds to personal expenses, including the rental of a Beverly Hills mansion and significant cash gifts to his family.
Avoid control
In an attempt to evade regulatory scrutiny, Al-Naji reportedly 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 over the network.
In addition, Al-Naji allegedly obtained a misleading opinion letter from a leading law firm based on his misrepresentations about the project, claiming that BTCLT was unlikely to be classified as a security under federal law.
Despite this, he reportedly confided to select investors that his actions were aimed at avoiding legal compliance.
SEC Director Gurbir S. Grewal commented on the matter, saying:
“Al-Naji sought to circumvent federal securities laws and defraud the investing public, wrongly believing that ‘fake’ decentralized generally confuses regulators and deters them from coming after you.” He’s clearly wrong…”
