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According to the SEC's complaint, starting in November 2020, Al-Naji raised more than $257 million from unregistered offers and sales of BTCLT, while falsely telling investors that proceeds would not be used to compensate him or other BitClout employees. In reality, the complaint alleges, Al-Naji spent more than $7 million of investor funds on personal expenditures like rental payments for a Beverly Hills mansion and extravagant cash gifts to family members.

The SEC's complaint further alleges that, to avoid regulatory scrutiny, Al-Naji portrayed BitClout as a decentralized project with "no company behind it … just coins and code," and launched the project using the pseudonym "Diamondhands" to further create the illusion that the project was autonomous when he was actually behind the project. In addition, Al-Naji allegedly secured a letter from a prominent law firm opining, based on his mischaracterizations of the nature of his project, that BTCLT were not likely to be deemed securities under federal law. At the same time, Al-Naji allegedly secretly told certain investors that he was engaged in this subterfuge to avoid compliance with the law.

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 provisions of Section 5 of the Securities Act of 1933, the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, and the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names Al-Naji's wife, mother, and wholly owned entities as relief defendants for the investor funds that Al-Naji transferred to them.

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