U.S. authorities have decided to drop charges against Nader Al-Naji, the founder of the decentralized social network BitClout, following legal battles concerning fraud and the sale of unregistered securities. As reported by Law360, court documents reveal that on February 28, U.S. Magistrate Judge Henry J. Ricardo granted the request from federal prosecutors in New York to dismiss the complaint without prejudice, marking a big turn in the case.
SEC and DOJ Drop Charges
The Securities and Exchange Commission (SEC), which had previously accused Al-Naji of fraud, also took steps to remove its civil charges against him in late February. The SEC had alleged that Al-Naji orchestrated a “multi-million-dollar fraudulent crypto asset scheme,” using investor funds for personal expenses, including renting a mansion in Beverly Hills and giving extravagant gifts to family members.
Al-Naji’s troubles began in March 2021 when he was arrested and charged with wire fraud and the sale of unregistered securities. The SEC accused him of misleading investors by presenting BitClout as a decentralized project with no company behind it. Al-Naji, who operated under the pseudonym “Diamond Hands,” was said to have raised approximately $257 million through the sale of BitClout’s native token, BTT. However, according to the SEC, he diverted over $7 million for personal use, including luxurious living expenses and family gifts.
Legal Background: SEC’s Allegations
The SEC’s complaint against Al-Naji stressed how he tried to create the illusion of a decentralized platform while securing a letter from a well-known law firm, claiming that BTT tokens were unlikely to be classified as securities under federal law. The agency argued that Al-Naji’s attempt to avoid federal regulations by creating a “fake decentralized” project was a clear effort to defraud investors.
The legal outcome could set a significant precedent for the cryptocurrency industry, particularly for projects claiming to be decentralized. Al-Naji’s case was closely watched by many in the crypto community, as it could have wider implications for how other crypto ventures approach regulatory compliance.
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