TheCorporateCounsel.net

It looks like a bipartisan consensus is emerging that the SEC should lighten up on crypto, but it would be a lot easier for me to buy into that position if the crypto bros would just dial back the whole fraud thing a little bit. Here’s an excerpt from the SEC’s announcement of its latest fraud-based enforcement proceeding against a prominent player in the crypto ecosystem:

The Securities and Exchange Commission today charged Nader Al-Naji with perpetrating a multi-million-dollar fraudulent crypto asset scheme involving a social media platform called BitClout and its native token of the same name (herein, “BTCLT”).

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 complaint charges Al-Naji with violating the registration and anti-fraud provisions of the Securities Act & the anti-fraud provisions of Exchange Act, and its press release says that the US Attorney for the SDNY has also filed criminal charges.

– John Jenkins