Nader Al-Naji, the founder of BitClout, a social media platform, has found himself in hot water with the US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). Both regulatory bodies have charged Al-Naji with orchestrating a multi-million-dollar fraudulent crypto asset scheme involving BitClout’s native token, BTCLT.
The SEC’s complaint against Al-Naji alleges that he raised over $257 million through unregistered offers and sales of BTCLT in November 2020. Investors were misled with claims that the funds would not be used for personal gain or compensation for Al-Naji or other BitClout employees. However, it was revealed that Al-Naji had spent over $7 million of these funds on personal expenses, including renting a mansion in Beverly Hills and giving lavish cash gifts to family members.
In an attempt to evade regulatory scrutiny, Al-Naji portrayed BitClout as a decentralized project with no company behind it. He even went as far as using the pseudonym “Diamondhands” to create the illusion of autonomy. The SEC alleged that Al-Naji obtained a letter from a law firm, based on mischaracterizations, suggesting that BTCLT was not a security under federal law. He also informed certain investors that he was engaging in this subterfuge to avoid legal compliance.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, made a statement regarding the charges against Al-Naji. He highlighted that Al-Naji’s attempts to evade federal securities laws and defraud investors were misguided. Grewal emphasized that the SEC focuses on economic realities rather than cosmetic labels, indicating that Al-Naji’s deceptive practices would not go unnoticed or unpunished.
In addition to Nader Al-Naji, his wife, mother, and wholly-owned entities were also named in the complaint as relief defendants for the investor funds that were directed to them. The US Attorney’s Office for the Southern District of New York has initiated a parallel investigation and brought charges against Al-Naji in connection with the fraudulent scheme.
The case against Nader Al-Naji and BitClout serves as a cautionary tale for those involved in the cryptocurrency space. It underscores the importance of transparency, compliance with regulatory requirements, and ethical practices in conducting business within the digital asset industry. The allegations of fraud and misleading investors not only tarnish the reputation of those involved but also highlight the need for greater vigilance and accountability in the rapidly evolving world of crypto assets.