BitClout founder ‘Diamondhands’ charged with securities fraud

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

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

The SEC alleges that Al-Naji, who operated under the pseudonym “Diamondhands” as of November 2020, deceived investors out of more than $257 million. The complaint states that Al-Naji believed that using a pseudonym and imitating a decentralized social protocol would confuse regulators.

“He is plainly wrong: As we have repeatedly shown, and as reflected in the SEC’s detailed allegations here, we are driven by economic realities, not cosmetics brands,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

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

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

Industry voices argue that the SEC has frequently overstepped its constitutional authority and lacked clarity in its regulatory approach to crypto. There has been speculation about how the SEC’s oversight of digital assets could change under new leadership or policies, and potentially how the agency’s jurisdiction could be reduced.

Stakeholders such as Gemini co-founder Tyler Winklevoss have called for the removal of SEC chairman Gary Gensler, while pro-crypto candidate Donald Trump has vowed to oust Gensler if elected.

BitClout’s story

BitClout came out of private beta in March 2021 so that platform users could stream for money. The blockchain social network allowed for short-form posts and for users to reward creators by clicking on the diamond icon.

Users could also purchase digital tokens tied to influencer identities and profiles. At the time, BitClout’s whitepaper stated that the platform was preloaded with 15,000 influencer profiles. However, not all influencers and figures agreed to the idea, and it was impossible to withdraw funds and assets from the protocol.

Al-Naji managed to raise millions of dollars from investors including Andreessen Horowitz, Coinbase, and Pantera in 2021 before US authorities intervened. a16z also funded Al-Naji’s failed algorithmic stablecoin Basis in 2018.

Despite funding from prominent industry backers, the decentralized social platform lost popularity shortly after its launch due to legal issues.

Crypto law firm Anderson Kill PC has issued a cease and desist order to BitClout on behalf of Radar Relay’s product team lead, Brandon Curtis. Curtis criticized Al-Naji and his protocol for using the decentralized ethos as leverage for illegal activities.