The Securities and Exchange Commission (SEC) has charged Nader Al-Naji, founder of the BitClout blockchain protocol, now known as Decentralized Social (DeSo), with running a multimillion-dollar fraudulent cryptocurrency scheme.
Al-Naji, who adopted the pseudonym “Diamondhands” to evade regulatory scrutiny, is accused of fraud and offering unregistered cryptoasset securities.
According to the SEC's complaint, as of November 2020, Al-Naji raised more than $257 million from unregistered offerings and sales of BitClout's native token, BTCLT. He allegedly deceived investors by claiming that the proceeds would not be used to compensate him or other BitClout employees. Contrary to these claims, Al-Naji reportedly spent over $7 million in investor funds on personal expenses, including rent payments for a mansion in Beverly Hills and extravagant cash gifts to family members.
The SEC's complaint also alleges that Al-Naji promoted BitClout as a decentralized project with “no company behind it… just coins and code” to avoid regulatory scrutiny. He started the project using the pseudonym “Diamondhands” to create the illusion of autonomy while secretly controlling the project.
Additionally, Al-Naji allegedly received a letter from a prominent law firm stating that, based on his inaccurate descriptions, BTCLT was unlikely to be considered a security under federal law. He also allegedly informed some investors that he was using this ruse to avoid complying with the law.
*This is not investment advice.