SEC Charges BitClout Founder Al-Naji with $257 Million Fraud

• SEC charges Nader Al-Naji with $257M fraud for misleading investors about BitClout funds and decentralization.
• Al-Naji accused of spending $7M on personal expenses, falsely claiming BitClout was decentralized.
• BitClout founder faces wire fraud charges, potential 20-year sentence, and family involvement in fund misuse.

The U.S. Securities and Exchange Commission (SEC) has filed charges against Nader Al-Naji, founder of BitClout, accusing him of luring investors out of $257 million through unregistered sales of BitClout tokens (BTCLT). The SEC’s complaint exposes a series of alleged frauds by Al-Naji, who reportedly deceived investors regarding the use of the treasury and the decentralized nature of the BitClout project.

According to the SEC, Al-Naji received over $257 million from the illicit sales of BTCLT tokens. Contrary to his statements to investors that the funds would not be used for personal gain, the SEC claims Al-Naji spent over $7 million on personal luxuries, including a Beverly Hills mansion and lavish gifts to family members. These allegations highlight a significant breach of trust and misuse of investor funds.

The SEC’s complaint also accuses Al-Naji of falsely claiming that BitClout was a decentralized platform. He allegedly operated the project under the pseudonym “Diamondhands,” all while maintaining central control. Despite public claims that BitClout was merely “coins and code,” the SEC asserts that Al-Naji was the driving force behind the project. 

To evade federal securities laws, Al-Naji obtained a letter from a prominent law firm asserting that BTCLT tokens were not securities. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated that Al-Naji believed decentralization claims would deter regulatory scrutiny.

BitClout has been embroiled in controversy since its launch in March 2021. The platform initially included 15,000 top profiles from X (formerly Twitter) without their consent, sparking criticism and legal challenges. 

Al-Naji later rebranded BitClout to DeSo (decentralized social), claiming to have raised over $200 million from firms like Andreessen Horowitz and Winklevoss Capital. However, Protos disputes these claims, suggesting that the $200 million funding round was merely a rebranding of the original token sale.

Al-Naji is also accused of inflating the price of BitClout’s tokens (now DESO) before their first exchange listing. The token’s price briefly peaked at $198.68 but has since plummeted by over 94% to $11.49. Additionally, Al-Naji faced allegations in 2017 of operating a Ponzi scheme with the Basis Protocol, which purportedly secured investments from notable firms.

Al-Naji has been taken into custody and charged with one count of wire fraud related to the BitClout scheme, carrying a potential 20-year prison sentence. His wife, mother, and wholly-owned entities are also named as defendants for receiving part of the investor funds.