On Tuesday, Nader Al-Naji, the creator of the open-source blockchain-based social media platform BitClout, was criticized by both the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for his involvement in an alleged “multi-million dollar fraudulent crypto scheme” involving the BitClout platform and its native token, BTCLT.
Allegations against BitClout founder
The SEC complaint paints a disturbing picture of Al-Naji’s actions, claiming that he has raised more than $257 million since November 2020 through “unregistered offerings” and sales of BTCLT, misleading investors by falsely assuring them that the proceeds would not be used for personal gain.
However, the complaint reveals that Al-Naji allegedly donated more than $7 million to investment funds for personal expenses, including “extravagant gifts” and rent payments on a Beverly Hills mansion.
To further complicate matters, the SEC’s complaint suggests that Al-Naji went to great lengths to portray BitClout as a decentralized entity with no central authority, hiding behind the pseudonym “Diamondhands” to maintain the illusion of autonomy.
Al-Naji is said to have been obtained legal advice to support BTCLT’s non-securities status by allegedly misrepresenting the project’s “true nature” while simultaneously revealing its alleged “deceptive practices” to secretly select investors.
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, stressed the seriousness of the situation, saying Al-Naji’s attempts to circumvent securities laws and mislead investors will not go unpunished.
Grewal further stated in the press release:
He is clearly wrong: as we have shown time and again, and as reflected in the SEC’s detailed allegations here, we are guided by economic realities, not cosmetic labels. The SEC’s dedicated staff has uncovered Al-Naji’s lies and will now hold him accountable for misleading investors.
Storm of regulations coming
The legal implications of these allegations are significant. The SEC has filed a complaint in the U.S. District Court for the Southern District of New York, accusing Al-Naji of securities registration violations and anti-fraud provisions dating from the Securities Act of 1933 and the Securities Exchange Act of 1934.
Additionally, Al-Naji’s wife, mother, and affiliated entities have been named as defendants seeking damages for funds allegedly transferred to them from investor contributions, according to the complaint published by the SEC on July 30.
Self-proclaimed crypto advocate Preston Byrne has spoken out about the situation, to mark previous warnings about Al-Naji’s activities, including his involvement in the alleged Basis Ponzi scheme in 2017 and claims about BitClout’s decentralization, are now under scrutiny by regulators including the Department of Justice.
The agency did not disclose in its publication how many years Al-Naji could receive if found guilty by a court, pending further disclosure and the start date of the trial.
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