TLDR
- BitClout founder Nader Al-Naji has been charged with wire fraud and selling unregistered securities by the SEC and DOJ.
- Al-Naji allegedly raised $257 million from token sales but spent $7 million on personal expenses.
- The SEC claims Al-Naji misled investors about BitClout’s decentralized nature to avoid regulation.
- BitClout was controversial for creating profiles of celebrities without permission.
- Major venture capital firms like Sequoia and Andreessen Horowitz had invested in BitClout.
Nader Al-Naji, the founder of crypto social media platform BitClout, is facing legal trouble. On July 30, 2024, the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) charged Al-Naji with wire fraud and selling unregistered securities.
According to the SEC, Al-Naji raised about $257 million by selling BitClout’s native token, BTCLT. He allegedly told investors this money would pay for BitClout employees. However, the SEC claims Al-Naji spent over $7 million on personal items. These included renting a mansion in Beverly Hills and giving large cash gifts to family members.
Al-Naji was arrested on Saturday, July 27, and appeared before a judge in California on Monday. The DOJ has charged him with one count of wire fraud, which could lead to up to 20 years in prison if he’s found guilty.
The SEC says Al-Naji tried to make BitClout seem like a decentralized project with “no company behind it…just coins and code.” He used the online name “Diamondhands” to hide his identity. The SEC also claims Al-Naji got a letter from a law firm saying BTCLT tokens were likely not securities. But this letter was based on information that Al-Naji had misrepresented, according to the SEC.
Gurbir S. Grewal, Director of the SEC’s Enforcement Division, said, “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.'”
BitClout launched in early 2021 as a blockchain-based social media platform. It quickly became controversial for creating profiles of celebrities without their permission. The project copied information from Twitter profiles onto the BitClout site.
This led to legal issues. A law firm sent Al-Naji a letter demanding BitClout stop using people’s identities without permission. Even Lee Hsien Loong, the former Prime Minister of Singapore, asked for his BitClout profile to be removed.
Despite these problems, BitClout had backing from major investors. According to Al-Naji, these included well-known firms like Sequoia, Andreessen Horowitz, Coinbase Ventures, and others. Sources say Sequoia invested $1 million and Andreessen Horowitz invested $3 million in an early funding round.
Many investors were willing to support Al-Naji because of his previous company, Basis. In 2018, Basis raised $140 million to create a stablecoin. But Al-Naji ended up returning most of the money when he realized regulations would make it hard to continue.
When Al-Naji approached investors with the idea for BitClout in early 2021, he presented it as a broad concept for decentralized social media. The controversial “social stock market” feature, where users could buy and sell tokens tied to people’s reputations, was not the main focus at first.
Some tech industry figures defended BitClout after its launch. Investors like Andrew Chen from Andreessen Horowitz and others bought tokens on the platform. Shaun Maguire from Sequoia Capital called BitClout “instantly electrifying” in a post.
The SEC’s complaint also names Al-Naji’s wife, mother, and related business entities as relief defendants. This is because they allegedly received some of the investor funds from Al-Naji.
Al-Naji has not yet responded to requests for comment on the charges. In late 2021, he expressed confidence in BitClout’s legal position, saying he had learned a lot about crypto regulations from his previous company.