The founder of BitClout, Nader Al-Naji, also known as “Diamondhands,” is facing charges of securities fraud by the U.S. Securities and Exchange Commission (SEC). The SEC alleges that Al-Naji violated federal securities laws by offering unregistered securities in the form of BTCLT tokens linked to the BitClout platform.
According to the complaint filed in a U.S. District Court for the Southern District of New York, Al-Naji raised over $257 million from investors starting in November 2020 by deceiving them. The SEC claims that Al-Naji believed using an alias and mimicking a decentralized social protocol would prevent regulators from taking action, but they proved him wrong.
In addition, the SEC accuses Al-Naji of using investor funds for personal expenses, such as renting a property in Beverly Hills and giving cash gifts. This misuse of funds was not disclosed to investors, according to federal prosecutors.
This is not the first time the SEC has targeted crypto-related operations for securities violations. Major platforms like Binance, Coinbase, Kraken, and Ripple have all faced legal action from the SEC for similar reasons. Many in the industry believe that the SEC’s regulatory approach to crypto lacks clarity and may overstep its constitutional authority.
There is speculation about how the SEC’s oversight of digital assets could change under new leadership or policies, potentially reducing the agency’s power. Some stakeholders, like Gemini co-founder Tyler Winklevoss, have called for the removal of SEC chair Gary Gensler, while pro-crypto figures like Donald Trump have promised to fire Gensler if elected.
BitClout, the decentralized social platform founded by Al-Naji, launched publicly in March 2021. Users could publish content on the platform and earn money, with the ability to reward creators by clicking a diamond icon. The platform also allowed users to purchase digital tokens tied to influencer profiles, despite not all influencers consenting to this use of their identities.
Despite raising millions of dollars from investors like Andreessen Horowitz, Coinbase, and Pantera in 2021, BitClout faced legal challenges and declined in popularity shortly after launch. Crypto law firm Anderson Kill P.C. issued a cease-and-desist order on behalf of Brandon Curtis, a product team lead at Radar Relay, criticizing Al-Naji for exploiting the decentralized nature of the platform for illegal activities.
Overall, the case against BitClout’s founder highlights the regulatory challenges facing the crypto industry and the importance of transparency and compliance with securities laws. Investors should be cautious when investing in crypto projects and ensure they understand the risks involved.