BitClout founder Nader Al-Naji has been charged by the SEC and DoJ with wire fraud and securities violations for allegedly misusing $257 million in investor funds.
SEC Allegations
Another day, another SEC lawsuit. The latest crypto entity under the regulator’s crosshairs is the Web3-based social media platform BitClout. The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) have jointly charged BitClout’s founder, Nader Al-Naji, with wire fraud and the sale of unregistered securities.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, accuses Al-Naji, known pseudonymously as “Diamondhands,” of raising approximately $257 million through the sale of BitClout’s native token, BTCLT. The SEC alleges that Al-Naji misappropriated investor funds, spending over $7 million on personal expenses, including rent for a Beverly Hills mansion and lavish gifts to family members.
Misleading Investors
According to an SEC press release, Al-Naji misled investors about the intended use of their funds, claiming they would be used for operational costs and salaries for BitClout employees.
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. He is obviously wrong: as we have shown time and again, and as reflected in the SEC’s detailed allegations here, we are guided by economic realities, not cosmetic labels.”
Broader Allegations Of Fund Misuse
The SEC’s lawsuit also names several members of Al-Naji’s family, including his wife and mother, as relief defendants for receiving funds transferred by Al-Naji. These transfers are part of the broader allegations of misuse of investor money.
In parallel, prosecutors in the Southern District of New York have filed criminal charges against Al-Naji. He faces one count of wire fraud related to the BitClout scheme, which carries a potential maximum sentence of 20 years in prison if convicted.
BitClout’s Controversial History
BitClout launched in early 2021, promoting itself as a proof-of-work blockchain designed to monetize social media interactions. From its inception, the project sparked controversy. Profiles of prominent community figures were created without their consent by scraping and copying their Twitter profiles onto the BitClout platform. The company was sued as its use of social media users’ likenesses without permission violated California’s Civil Code section 3344, which protects individuals’ rights to profit from their identity’s commercial value.
Critics of BitClout have also pointed out that its model further incentivizes users to open short positions and target someone’s reputation, effectively encouraging attempts to ‘cancel’ individuals for profit.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
