The U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) charged Nader Al-Naji ’14, the founder of crypto social media platform BitClout, with wire fraud and the sale of unregistered offerings of crypto asset securities on July 30.
BitClout, advertised as a decentralized social media platform and “The First Crypto Social Network,” was launched in 2021. The platform functioned as a token-based marketplace for shares in a celebrity’s popularity.
An SEC announcement July 30 alleges Al-Naji, using the pseudonym “DiamondHands,” raised over $257 million from unregistered offers and sales of BitClout’s token, BTCLT, while telling investors the money would not be used to pay himself nor employees. However, the SEC alleged that the founder spent over $7 million on personal expenditures such as a Beverly Hills mansion and cash gifts to family.
Al-Naji was unable to provide comment on the charges at time of publication to the Daily Princetonian. BitClout is a spin-off of another company Al-Naji founded called Decentralized Social (DeSo).
“We understand there’s been significant concern regarding recent events. We want to let you know that @nader is safe and at home,” DeSo posted in a statement to Diamond, another social network built off of the company’s platform. “He’s currently preparing a comprehensive public update to address the situation. In the meantime, we can share that this experience has only reinforced Nader’s commitment to DeSo.”
“He views this as another challenge to overcome on our path to success. His enthusiasm for our mission remains unwavering, if not stronger than ever,” the statement added.
BitClout’s investors include some high profile Silicon Valley groups, like a16z, Sequoia, Chamath Palihapitiya’s Social Capital, Coinbase Ventures and Winklevoss Capital — some of which participated in the $7-million seed round that initially funded the company.
Prior to the founding of BitClout, Al-Naji had garnered a positive reputation in the crypto sphere after raising $140 million in 2018 to create a “stablecoin,” a type of crypto-currency whose value is attached to a real-world commodity. While Al-Naji ultimately returned the money after failing to launch, his reputation drew investors in when he pitched BitClout.
The announcement further alleges that Al-Naji portrayed BitClout as a decentralized platform with no companies behind it, “just coins and code.” He used a pseudonym to further this image when the charges allege, in reality, Al-Naji was behind the entire project.
Al-Naji allegedly confided to some investors that he was attempting to bypass legal requirements, while filing misleading descriptions of BTCLT, so it would not be considered a security under federal law.
“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,’” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement in the announcement. “He is obviously wrong.”
This is not the first time BitClout has found itself in legal trouble. When the company was first launched in 2021, the platform was criticized for scraping 15,000 profiles from Twitter to attach the value of crypto tokens to celebrities’ popularity.
In response, Brandon Curtis, cofounder of crypto company Rio Network, presented a cease-and-desist letter to Al-Naj for using his image and likeness and former Prime Minister of Singapore Lee Hsien Loong publicly asked for his account to be removed.
Al-Naji was arrested Saturday, July 27 and faces a maximum sentencing of 20 years in prison.
This story is developing and will be updated as more information becomes available.
Bridget O’Neill is a head News editor for the ‘Prince’ from Palm Beach Gardens, Fla.
Please send corrections to corrections[at]dailyprincetonian.com.
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