SEC Charges Nader Al-Naji with Fraud and Unregistered Offering of Crypto Asset Securities

Unveiling the Allegations: Fraudulent Crypto Scheme

The Securities and Exchange Commission (SEC) has charged Nader Al-Naji with orchestrating a multi-million-dollar fraudulent crypto asset scheme involving a social media platform named BitClout and its native token, BTCLT.

Raising Funds Through Deception

Starting in November 2020, Al-Naji raised over $257 million through unregistered offers and sales of BTCLT. According to the SEC’s complaint, Al-Naji misled investors by claiming that the funds would not be used to compensate him or other BitClout employees. Contrary to these statements, Al-Naji allegedly spent more than $7 million of investor money on personal expenses, including rental payments for a Beverly Hills mansion and extravagant cash gifts to his family members.

Creating a Facade of Decentralization

According to the SEC, Al-Naji portrayed BitClout as a decentralized project to avoid regulatory scrutiny, claiming there was “no company behind it… just coins and code.” He launched the project using the pseudonym “Diamondhands” to further the illusion of autonomy. Despite these claims, Al-Naji was controlling the project. Additionally, Al-Naji obtained a letter from a prominent law firm, which, based on his mischaracterizations, stated that BTCLT was not likely to be considered securities under federal law. Simultaneously, he allegedly confided to select investors that this deception was intended to skirt legal compliance.

SEC’s Comments

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the seriousness of Al-Naji’s actions. “As alleged in our complaint, Al-Naji attempted to evade 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 Grewal. “He is obviously wrong: as we have shown time and again, and as reflected in the SEC’s detailed allegations here, we are guided by economic realities, not cosmetic labels. The dedicated staff of the SEC uncovered Al-Naji’s lies and will now hold him accountable for misleading investors.”

Legal Actions and Charges

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges 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. Al-Naji’s wife, mother, and wholly-owned entities are also named as relief defendants for the investor funds he transferred to them.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York has announced charges against Al-Naji.

Implications for Investors and the Crypto Industry

This case highlights the risks associated with unregulated crypto investments and the importance of regulatory oversight in protecting investors. The SEC’s actions demonstrate a commitment to uncovering and prosecuting fraudulent schemes, ensuring that perpetrators are held accountable. Investors are advised to conduct thorough due diligence and remain cautious of projects that promise high returns without regulatory compliance.

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Securities Attorney at  | 212-509-6544 | mja@sallahlaw.com | Website |  + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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