SEC charges BitClout founder Nader ‘Diamondhands’ Al-Naji with wire fraud, civil securities violations

The SEC has charged Nader Al-Naji, founder of the BitClout blockchain protocol, with perpetrating a fraudulent crypto asset scheme involving over $257 million raised through unregistered offers and sales of the BTCLT token.

According to the SEC’s complaint filed in the US District Court for the Southern District of New York, Al-Naji falsely told investors that proceeds from the token sale would not be used to compensate him or other BitClout employees. Instead, he allegedly spent more than $7 million of investor funds on personal expenses, including rental payments for a Beverly Hills mansion and large cash gifts to family members.

Al-Naji had established a track record of attracting significant venture capital investment. His previous project, Basis, raised over $133 million from prestigious investors including Bain Capital Ventures, Google Ventures, Andreessen Horowitz, and Lightspeed.

This funding history, along with backing from notable individual investors like Stan Druckenmiller and Kevin Warsh, likely contributed to the initial credibility and support for the BitClout project, which later evolved into DeSo (Decentralized Social). In 2022, Crypto Briefing covered Al-Naji’s early forays into creating DAOs. Despite the current legal challenges, DeSo has grown to host over 1.5 million accounts and 200 apps.

The SEC alleges that Al-Naji adopted the pseudonym “Diamondhands” and portrayed BitClout as a decentralized project with “no company behind it … just coins and code” to avoid regulatory scrutiny. He also reportedly obtained a legal opinion letter based on mischaracterizations of the project to claim BTCLT tokens were not likely securities.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated:

“As alleged in our complaint, 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.”

The SEC has charged Al-Naji with violating registration and anti-fraud provisions of federal securities laws. His wife, mother, and wholly owned entities are named as relief defendants for receiving transferred investor funds. In a parallel action, the US Attorney’s Office for the Southern District of New York also announced criminal charges against Al-Naji.