TLDR
- BitClout founder Nader Al-Naji has been charged with wire fraud and selling unregistered securities by the SEC and DOJ.
- Al-Naji allegedly raised $257 million from selling BTCLT tokens but misused $7 million on personal expenses.
- The SEC claims Al-Naji tried to make BitClout seem decentralized to avoid regulatory scrutiny.
- Al-Naji was arrested on Saturday and faces up to 20 years in prison if convicted of wire fraud.
- BitClout was a controversial project from its launch in 2021, creating profiles of crypto figures without consent.
Nader Al-Naji, the founder of crypto social media platform BitClout, has been charged with wire fraud and selling unregistered securities by the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ).
The charges stem from Al-Naji’s alleged misuse of investor funds and attempts to evade regulatory oversight.
According to court documents, Al-Naji, known by the pseudonym “Diamondhands,” raised approximately $257 million through the sale of BitClout’s native token, BTCLT.
The SEC claims that while Al-Naji told investors the funds would be used to pay BitClout employees, he instead spent over $7 million on personal expenses. These reportedly included renting a mansion in Beverly Hills and giving large cash gifts to family members.
The SEC’s complaint accuses Al-Naji of taking steps to make BitClout appear decentralized, using the pseudonym and obtaining a legal opinion based on mischaracterizations of the project.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated that 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.'”
Al-Naji was arrested on Saturday and presented to a magistrate judge in California on Monday. The DOJ has filed parallel criminal charges, including one count of wire fraud, which carries a maximum sentence of 20 years in prison if convicted.
BitClout, launched in early 2021, was promoted as a blockchain-based social media platform. However, it quickly became controversial. The project created profiles for well-known figures in the crypto space without their consent, using information scraped from Twitter.
This led to legal challenges, including a cease-and-desist letter from law firm Anderson Kill, citing violations of California’s right to publicity laws.
Critics also raised concerns about the platform’s financial structure. Users had to trade bitcoin for BTCLT to use their BitClout profiles, but there was no way to convert BTCLT back to bitcoin on the platform, effectively trapping users’ funds.
Despite these controversies, BitClout attracted investment from prominent venture capital firms. According to a 2021 interview with Al-Naji, investors included Sequoia, Andreessen Horowitz, Coinbase Ventures, and others.
The SEC’s lawsuit also names several of Al-Naji’s family members as relief defendants for the investor funds transferred to them. Additionally, the complaint mentions Decentralized Social (DeSo), a newer project from Al-Naji, though the specifics of its involvement are not clear from the available information.
The charges against Al-Naji highlight the ongoing regulatory scrutiny of cryptocurrency projects, particularly those that may be attempting to sidestep securities laws. The SEC’s actions demonstrate its commitment to pursuing cases of alleged fraud and unregistered securities offerings in the crypto space, regardless of claims of decentralization.
Al-Naji’s arrest and the charges against him mark a significant development in the BitClout story, which has been controversial since its inception. As the legal proceedings unfold, they may have implications for other crypto projects and their approaches to regulatory compliance.
