BitClout founder ‘Diamondhands’ charged with securities fraud

The U.S. Securities and Exchange Commission has accused BitClout founder Nader Al-Naji of fraud and violating federal securities laws.

According to the SEC complaint filed in a U.S. District Court for the Southern District of New York, Al-Naji offered unregistered securities in BTCLT tokens linked to decentralized social media platform BitClout.

The SEC alleges that from November 2020, Al-Naji, operating under the pseudonym “Diamondhands,” raised over $257 million by deceiving investors. The complaint states that Al-Naji believed using an alias and mimicking a decentralized social protocol would confuse regulators.

“He is obviously wrong: as we have shown time and again, and as reflected in the SEC’s detailed allegations here, we are guided by economic realities, not cosmetic labels,” said Gurbir S. Grewal, director of the SEC’s Enforcement Division. 

The SEC also claims that Al-Naji lied about not using BTCLT proceeds to finance personal expenses and BitClout’s payroll. Federal prosecutors highlighted that $7 million of investor funds were allegedly spent on renting a Beverly Hills property and cash gifts.

Since 2022, the SEC has sued arious crypto-related operations, including major platforms like Binance, Coinbase, Kraken, and Ripple, primarily for alleged illegal securities sales and similar violations.

Industry voices argue that the SEC often exceeds its constitutional authority and lacks clarity in its regulatory approach to crypto. There is speculation about how the SEC’s oversight of digital assets might change under new leadership or policies, potentially reducing the agency’s purview.

Stakeholders like Gemini co-founder Tyler Winklevoss have urged the removal of SEC chair Gary Gensler, and pro-crypto candidate Donald Trump has promised to fire Gensler if elected.

BitClout’s story

BitClout launched out of private beta in March 2021 as platform users could publish on to earn money. The blockchain social network allowed short-form posts and users to reward creators by clicking a diamond icon.

Users could also purchase digital tokens tied to influencer identities and profiles. At the time, BitClout’s whitepaper said the platform was pre-loaded with 15,000 influencer profiles. However, not all influencers and figures consented to the idea, and withdrawing funds and assets from the protocol was also impossible. 

Al-Naji successfully raised millions of dollars from investors, including Andreessen Horowitz, Coinbase, and Pantera, in 2021 before U.S. authorities intervened. a16z also funded Al-Naji’s failed algorithmic stablecoin Basis in 2018.

Despite funding from top industry backers, the decentralized social platform declined in popularity shortly after launch due to legal debacles. 

Crypto law firm Anderson Kill P.C. issued BitClout a cease-and-desist order on behalf of Brandon Curtis, Radar Relay’s product team lead. Curtis blasted Al-Naji and his protocol for leveraging the decentralized ethos for illegal activity.