Nader Al-Naji had it all: an Ivy League education, a resume that included a stint at Google, and connections to top Silicon Valley venture capitalists. Then it all came crashing down. This week, the FBI arrested Al-Naji, who calls himself “Diamondhands,” on charges of a cryptocurrency scam that led to him becoming part of “BitClout,” a short-lived social network that took hundreds of millions of dollars from investors and users and turned them into stock market investments.
In an indictment filed in New York federal court, the Securities and Exchange Commission alleges that Al-Naji promised investors that BitClout, which he created by scanning unauthorized Twitter profiles, was decentralized and that no one controlled the funds on the platform. In reality, he used the money for himself, spending millions on a six-bedroom mansion in Beverly Hills and extravagant gifts for his wife and mother.
The BitClout disaster wasn’t Al-Naji’s first crypto project. The 32-year-old Los Angeles resident, who rowed as an undergraduate at Princeton, first caught the attention of the crypto world in 2018 when he raised $118 million to develop a stablecoin called Basis. Unlike other stablecoins that require a full dollar reserve to create a $1 peg to the U.S. dollar, Basis was based on an algorithm very similar to the infamous Terra coin that triggered the crypto markets crash in 2021. Al-Naji pulled the plug on Basis months after launching it and returned the money. (Al-Naji could not immediately be reached for comment.)
But his next foray into crypto didn’t end so neatly. According to the SEC indictment, Al-Naji received an opinion from a major U.S. law firm that his proposed BitClout project did not violate securities laws, but only after lying to the firm’s lawyers about how it actually worked.
According to the indictment, Al-Naji then used legal advice to convince venture capital firms, including Andreessen Horowitz, to invest in BitClout, offering them discounts to acquire “BTCLT” tokens. After launching the site, he invited people to send Bitcoin to purchase BTCLT to purchase avatars he had created for them without permission. Operating under the pseudonym Diamondhands, Al-Naji continued to claim that the platform was decentralized, while also selling BTCLT on cryptocurrency exchanges.
As the SEC noted, Al-Naji further deceived investors by not telling them that if they bought BTCLT on BitClout, they would not be able to convert it back into Bitcoin. Al-Naji raised $257 million in total through BitClout, more than half of which came from retail investors. BTCLT once traded for more than $175, but today it is worthless.
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Al-Naji quietly shut down BitClout months after launching it and later raised millions of dollars from venture capitalists for a new crypto startup called DeSo (short for “decentralized social”), but that venture hasn’t gone anywhere since.
In addition to the lawsuits filed by the SEC, the FBI is also charging Al-Naji with wire fraud, which carries a penalty of up to 30 years in prison.
This story was first published on Fortune.com