SEC costs BitClout founder Nader ‘Diamondhands’ Al-Naji with wire fraud, civil securities violations

The SEC has charged Nader Al-Naji, founding father of the BitClout blockchain protocol, with perpetrating a fraudulent crypto asset scheme involving over $257 million raised by way of unregistered presents and gross sales of the BTCLT token.

In keeping with the SEC’s grievance filed within the US District Court docket for the Southern District of New York, Al-Naji falsely instructed traders that proceeds from the token sale wouldn’t be used to compensate him or different BitClout staff. As a substitute, he allegedly spent greater than $7 million of investor funds on private bills, together with rental funds for a Beverly Hills mansion and huge money items to relations.

Al-Naji had established a monitor file of attracting vital enterprise capital funding. His earlier challenge, Foundation, raised over $133 million from prestigious traders together with Bain Capital Ventures, Google Ventures, Andreessen Horowitz, and Lightspeed.

This funding historical past, together with backing from notable particular person traders like Stan Druckenmiller and Kevin Warsh, seemingly contributed to the preliminary credibility and help for the BitClout challenge, which later advanced into DeSo (Decentralized Social). In 2022, Crypto Briefing lined Al-Naji’s early forays into creating DAOs. Regardless of the present authorized challenges, DeSo has grown to host over 1.5 million accounts and 200 apps.

The SEC alleges that Al-Naji adopted the pseudonym “Diamondhands” and portrayed BitClout as a decentralized challenge with “no firm behind it … simply cash and code” to keep away from regulatory scrutiny. He additionally reportedly obtained a authorized opinion letter based mostly on mischaracterizations of the challenge to say BTCLT tokens weren’t seemingly securities.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said:

“As alleged in our grievance, Al-Naji tried to evade the federal securities legal guidelines and defraud the investing public, mistakenly believing that ‘being “pretend” decentralized usually confuses regulators and deters them from going after you.’ He’s clearly incorrect: as we’ve got proven repeatedly, and as mirrored within the SEC’s detailed allegations right here, we’re guided by financial realities, not beauty labels.”

The SEC has charged Al-Naji with violating registration and anti-fraud provisions of federal securities legal guidelines. His spouse, mom, and wholly owned entities are named as aid defendants for receiving transferred investor funds. In a parallel motion, the US Lawyer’s Workplace for the Southern District of New York additionally introduced prison costs in opposition to Al-Naji.