The U.S. Securities and Exchange Commission (SEC) has formally lodged charges against Nader Al-Naji, founder of the BitClout blockchain protocol, marking a significant development in regulatory actions against crypto entities.
The charges pertain to an alleged multi-million-dollar fraudulent scheme centered around BitClout’s native token (BTCLT) and its associated social media platform.
Unraveling the Allegations
According to the SEC’s detailed complaint, starting in November 2020, Al-Naji is accused of raising over $257 million through unregistered sales of BTCLT tokens.
Investors were reportedly misled about the utilization of their funds; contrary to Al-Naji’s assurances that proceeds would not benefit him personally or other BitClout employees, he allegedly used more than $7 million for personal expenses, including lavish lifestyle expenditures such as rental payments for a Beverly Hills mansion and substantial cash gifts to relatives.
Al-Naji’s strategy to evade regulatory oversight involves portraying BitClout as a decentralized initiative, claiming it was a project with “no company behind it… just coins and code, according to the SEC.”
Operating under the pseudonym “Diamondhands,” he allegedly sought to perpetuate the façade of autonomy to sidestep legal obligations, even obtaining a favorable legal opinion under false pretenses which misrepresented the project’s true nature. This was purportedly done in an effort to mislead regulators and potential investors about the security status of BTCLT tokens.
Regulatory Response and Legal Implications
The SEC’s enforcement action illuminates its stance that the economic substance of transactions will guide their regulatory approach, not merely the outward depiction of projects as decentralized. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that deceptive practices aimed at confusing regulators and evading the federal securities laws would not be tolerated. Grewal noted:
“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. He is obviously 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 dedicated staff of the SEC uncovered Al-Naji’s lies and will now hold him accountable for misleading investors.”
The SEC’s complaint charges Al-Naji with violations of both the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.
In addition to the SEC’s civil charges, the U.S. The Attorney’s Office for the Southern District of New York has initiated criminal charges against Al-Naji, signaling a robust and coordinated response from federal authorities.