Nader Al-Naji, the founder of the cryptocurrency social networking platform BitClout, has been arrested and faces civil and criminal charges from the US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).
Al-Naji, also known as ‘Diamondhands,’ allegedly raised approximately $257 million by selling the native BitClout token, BTCLT. He misled investors by claiming that the funds would be used to pay BitClout employees, but instead spent over $7 million on personal expenses, including renting a Beverly Hills mansion and giving money gifts to family members.
Al-Naji cited numerous well-known investors in 2021, including Sequoia, a16z, the Winklevoss twins, Coinbase, Pantera, DCG, Polychain, and Huobi.
Details of the Accusations Against the BitClout Founder
The SEC accuses Al-Naji of making BitClout appear as a decentralized project without a company behind it, claiming it had ‘only tokens and code.’ In addition to using a pseudonym, Al-Naji allegedly obtained a letter from a reputable law firm stating, based on his false statements, that the BTCLT tokens would likely not be considered securities under federal law.
Gurbir S. Grewal, director of the SEC’s enforcement division, said in a press release:
‘As alleged in our complaint, Al-Naji attempted to evade federal securities laws and defraud the investing public, mistakenly believing that ‘pretending to be decentralized’ would confuse regulators and deter them from taking action. The SEC uncovered Al-Naji’s lies and will hold him accountable for misleading investors.’
Legal Actions and Consequences
Several members of Al-Naji’s family, including his wife and mother, are named as relief defendants for investor funds transferred to them by Al-Naji in connection with the SEC lawsuit. Parallel criminal charges have been filed against Al-Naji by prosecutors in the Southern District of New York. Al-Naji is charged with one count of electronic fraud for BitClout, an accusation that could carry a maximum sentence of 20 years in prison if convicted.
Controversy Surrounding BitClout
BitClout, launched in early 2021, was promoted as a proof-of-work blockchain designed to manage and monetize social networks. From the beginning, the project has been met with controversy. Profiles of prominent cryptocurrency figures were created without their consent, including scraping and copying their Twitter profiles onto BitClout’s site.
Shortly after its launch, the law firm Anderson Kill sent Al-Naji a cease-and-desist letter, stating that using users’ social media images without their permission violated California civil code.
Critics have also suggested that BitClout’s model encourages ‘canceling’ users. Malicious individuals could open short positions on a user’s profile and spread damaging statements to harm their reputation.
Furthermore, to use their BitClout profiles, users had to exchange BTC for BTCLT, with no ability to convert BTCLT back to BTC on the BitClout site, effectively locking their money on the platform.
