The Securities and Exchange Commission (SEC) has charged Nader Al-Naji with $257 million fraud in connection with BitClout and BTCLT tokens. The complaint revealed that Al-Naji had been telling investors lies all along.
In a statement on Tuesday, the SEC disclosed that Al-Naji raised more than $257 million from unregistered offers and sales of BitClout tokens, BTCLT. The statement revealed that he lied to investors that the treasury wouldn’t be used to pay him or other BitClout employees but proceeded to spend over $7 million on a Beverly Hills mansion and extravagant cash gifts to family members.
Al-Naji also lied about BitClout being decentralized, according to the SEC. He claimed that the project was “just coins and code” but was behind the project the whole time under the pseudonym “Diamondhands.” The SEC said Al-Naji had also obtained a letter from a prominent law firm to say that BTCLT tokens would not be deemed as securities.
“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,’ said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
BitClout founder charged for wire fraud amid controversies
BitClout has not been without controversies. Shortly after the Web3 social network was launched in March 2021, it was populated with 15,000 top profiles from X (formerly Twitter), with their profile coins trading for thousands of dollars. This drew criticism, even a legal case, against the platform as the individuals were not aware or agreed to BitClout.
Months into the launch, Al-Naji rebranded BitClout to DeSo, or “decentralized social.” Reports have it that DeSo initially raised over $200 million from firms such as Andreessen Horowitz and Winklevoss Capital. However, Protos claims that was false, saying he only repackaged his “original token sale as a fresh $200 million funding round for the same blockchain he’s peddled all year.”
Protos also accused Al-Naji of inflating the price of BitClout’s tokens (now DESO) ahead of its first exchange listing. The token was listed at $180, traded up to $198.68 ATH, and has since dropped by over 94% to $11.49 at the time of writing.
Al-Naji had also faced accusations of operating a Ponzi scheme in 2017 with Basis Protocol, which allegedly scored investments from Lightspeed and Bain, according to a crypto lawyer, Preston Byrne.
The BitClout founder has been taken into custody and charged with one count of wire fraud for the BitClout scheme, which carries a maximum sentence of 20 years. Al-Naji’s wife, mother, and wholly-owned entities were also named defendants in the case for receiving part of the investor funds.
