SEC Charges BitClout Founder with Fraud and Securities Violations

Nader Al-Naji, the creator of BitClout, is accused by the U.S. Securities and Exchange Commission (SEC) of fraud and breaking federal securities laws. Al-Naji is accused in the lawsuit of providing unregistered securities using BTCLT tokens connected to the BitClout platform. The case was submitted to the U.S. District Court for the Southern District of New York.

Under the alias “Diamondhands,” Al-Naji is accused of deceiving investors to raise around $257 million starting in November 2020. Al-Naji allegedly believed that using a fictitious identity and imitating a decentralized social protocol would hide his activities from authorities, according to the SEC.

“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 alleges Al-Naji misused BTCLT proceeds for personal expenses and BitClout’s payroll, including spending $7 million on renting a Beverly Hills property and giving cash gifts.

Stakeholders Demand Accountability

Prominent figures like Gemini co-founder Tyler Winklevoss have called for the removal of SEC chair Gary Gensler. Additionally, pro-crypto candidate Donald Trump has vowed to fire Gensler if elected.

BitClout launched out of private beta in March 2021, allowing users to publish and earn money on the platform. The blockchain social network enabled short-form posts, and users could reward creators by clicking a diamond icon. Users could also buy digital tokens tied to influencer identities and profiles. BitClout’s whitepaper mentioned the platform was pre-loaded with 15,000 influencer profiles, though not all influencers consented to the idea.

The platform was criticized for making it impossible to withdraw assets and money, even though it was initially successful. Before American authorities became involved, Al-Naji received millions from investors, including Andreessen Horowitz, Coinbase, and Pantera. a16z also provided funds to Al-Naji’s prior project, the unsuccessful algorithmic stablecoin Basis, in 2018.

Shortly after its launch, BitClout’s popularity dropped because of legal problems. Radar Relay’s product team lead, Brandon Curtis, was the beneficiary of a cease-and-desist injunction issued by cryptocurrency law firm Anderson Kill P.C. Curtis took issue with Al-Naji’s use of the decentralized ethos for illicit purposes.

BitClout’s demise was brought about by legal disputes and operational difficulties, even with the support of prominent industry investors. This underscores the difficulty in negotiating regulatory frameworks in the rapidly changing cryptocurrency ecosystem.