SEC sues BitClout founder Nader Al-Naji, says he lied to investors about the project's decentralization

The U.S. Securities and Exchange Commission charged BitCloud founder Nader Al-Naji with fraud after the agency said he used investors' funds in part to pay rent on a mansion in Beverly Hills.

Al-Naji, 32, raised more than $257 million from the "unregistered offers and sales" of a native token, called BTCLT, which is on the blockchain-based platform BitClout. Al-Naji allegedly lied to investors about the "decentralized nature of the project," the SEC said in a complaint filed in the U.S. District Court for the Southern District of New York on Tuesday.

The SEC said Al-Naji raised millions from selling BTCLT while dishonestly telling investors the funds would not be used to reimburse himself or BitClout employees. However, Al-Naji spent more than $7 million of investors' funds on personal items including rent on a six-bedroom Beverly Hills mansion and "extravagant cash gifts" to family, the agency said.

“As alleged in our complaint, Al-Naji attempted to evade the 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 Gurbir S. Grewal, director of the SEC’s Division of Enforcement, in a statement. “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."

Al-Naji's wife and mother are also listed as defendants in the complaint. The U.S. Attorney's Office for the Southern District of New York also announced charges against Al-Naji in a parallel action on Tuesday.

Al-Naji previously went by the pseudonym Diamondhands and revealed his identity in 2021 when launching "Decentralized Social." The blockchain received $200 million in funding from high-profile venture firms.