Key Takeaways:
- SEC has charged BitClout founder Nader Al-Naji with fraud for allegedly misusing over $7 million of investor funds
- Al-Naji is accused of attempting to evade regulatory oversight by falsely portraying BitClout as a decentralized entity
In a major development, the U.S. Securities and Exchange Commission (SEC) has charged Nader Al-Naji, founder of BitClout, with fraud. The SEC alleges that Al-Naji misused investor funds for personal expenses, including the rental payments for a Beverly Hills mansion.
According to the SEC’s complaint, Al-Naji assured investors that proceeds from the token sale would not be used to compensate him or other BitClout employees.
Contrary to these assurances, over $7 million of investor funds were allegedly spent on personal luxuries, such as lavish cash gifts to family members and rent for a luxurious Beverly Hills residence.
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Al-Naji had a history of attracting significant venture capital, having raised over $133 million for his previous project, Basis, from prominent investors like Bain Capital Ventures, Google Ventures, Andreessen Horowitz, and Lightspeed.
To avoid regulatory scrutiny, he allegedly portrayed BitClout as a decentralized entity with no controlling company and used the pseudonym “Diamondhands” to conceal his involvement.
The SEC’s complaint also claims that Al-Naji secured a misleading legal opinion from a prominent law firm, suggesting that BTCLT tokens would not be classified as securities under federal law. Simultaneously, he reportedly disclosed to select investors his intention to circumvent legal requirements.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the seriousness of the allegations. “Al-Naji attempted to evade federal securities laws and defraud the investing public, mistakenly believing that ‘being “fake” decentralized’ would deter regulators. The SEC is guided by economic realities, not cosmetic labels, and we will hold him accountable for misleading investors.“
The SEC has charged Al-Naji with violating 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, several members of Al-Naji’s family, including his wife and mother, are named as relief defendants for the investor funds transferred to them.
Parallel criminal charges have been filed by the U.S. Attorney’s Office for the Southern District of New York, including one count of wire fraud related to the BitClout scheme, which carries a maximum sentence of 20 years in prison if convicted.
