The U.S. Securities and Exchange Commission (SEC) has charged Nader Al-Naji, founder of Bitclout (now Decentralized Social), with orchestrating a fraudulent crypto scheme that raised over $257 million. The SEC alleges that Al-Naji conducted unregistered sales of Bitclout tokens (BTCLT) and used the funds for personal expenses.
Details of the Fraudulent Scheme
According to the SEC, Al-Naji, who adopted the pseudonym “Diamondhands,” raised funds starting in November 2020 by selling BTCLT tokens without registering them. The SEC’s complaint states that Al-Naji misled investors about how the funds would be used, diverting the money for personal luxuries, including renting a Beverly Hills mansion and providing lavish cash gifts to family members.
To avoid regulatory scrutiny, Al-Naji allegedly portrayed Bitclout as a decentralized project. He attempted to convince investors and regulators that the platform operated autonomously by using a pseudonym and even secured a legal opinion misrepresenting that BTCLT tokens were not securities. The SEC claims this was a deliberate effort to mislead both investors and regulators.
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Regulatory Actions and Statements
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated, “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.” The SEC’s charges highlight the ongoing effort to crack down on fraudulent activities in the cryptocurrency space.
In addition to the SEC’s charges, the U.S. Attorney’s Office for the Southern District of New York has also announced charges against Al-Naji, further intensifying the legal scrutiny surrounding the case.
Implications and Next Steps
The charges against Al-Naji underscore the SEC’s commitment to enforcing securities laws in the rapidly evolving crypto market. The case also serves as a warning to other crypto projects that attempt to mislead regulators by falsely claiming decentralization. As the investigation progresses, the outcome may set a precedent for how similar cases are handled in the future, potentially influencing regulatory approaches to crypto assets.
