BitClout Founder Charged with Fraud and Securities Violations by SEC

Nader Al-Naji, the founder of crypto social media platform BitClout, has been charged with fraud and securities law violations by the U.S. Securities and Exchange Commission (SEC) and the Department of Justice. The charges, announced on Tuesday, allege that Al-Naji raised over $257 million through the unregistered sale of BitClout’s native token, BTCLT, while misleading investors about the project’s nature and use of funds.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, accuses Al-Naji of falsely portraying BitClout as a decentralized project with “no company behind it … just coins and code.” Operating under the pseudonym “Diamondhands,” Al-Naji allegedly attempted to evade regulatory scrutiny by creating an illusion of autonomy.

According to the SEC, Al-Naji told investors that proceeds from BTCLT sales would not be used to compensate himself or other BitClout employees. However, the complaint alleges that he spent over $7 million of investor funds on personal expenses, including rental payments for a Beverly Hills mansion and cash gifts to family members.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated, “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.'”

The charges against Al-Naji also extend to his newer project, Decentralized Social (DeSo). The SEC claims that messages to certain investors reveal Al-Naji’s intent to avoid regulatory scrutiny by promoting the project as decentralized.

BitClout, launched in 2021, attracted high-profile investors including Andreessen Horowitz, Sequoia Capital, and Coinbase Ventures. The platform allowed users to buy and sell tokens based on people’s reputations, causing controversy by scraping profiles from Twitter without consent.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York has charged Al-Naji with one count of wire fraud, which carries a maximum sentence of 20 years if convicted.

The case highlights the ongoing regulatory challenges in the crypto industry and the SEC’s continued focus on projects that it believes violate securities laws, regardless of claims of decentralization.