The U.S. Securities and Exchange Commission has charged BitClout founder Nader Al-Nazi with fraud and violation of federal securities laws.
According to an SEC complaint filed in the Southern District Court of New York, Alnaji offered unregistered securities in the form of BTCLT tokens linked to BitClout, a decentralized social media platform.
The SEC alleges that Al-Naji, who operates under the pseudonym “Diamondhands,” has defrauded investors out of more than $257 million since November 2020. The complaint states that Al-Naji believed that using a pseudonym and mimicking a decentralized social protocol would confuse regulators.
“He is simply wrong. As we have shown time and time again, and as reflected in the SEC’s detailed arguments, we are guided by economic realities, not cosmetic labeling,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
The SEC also claims Al-Naji lied when he said he didn’t use BTCLT profits for personal expenses and BitClout salaries. Federal prosecutors emphasized that $7 million of investor funds were used to rent a Beverly Hills property and buy cash gifts.
Since 2022, the SEC has sued a number of cryptocurrency-related companies, 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 often exceeds its constitutional authority and lacks clarity in its regulatory approach to cryptocurrencies. There is speculation about how the SEC’s oversight of digital assets will change under new leadership or policies, potentially reducing the agency’s jurisdiction.
Stakeholders, including Gemini co-founder Tyler Winklevoss, have called for SEC Chairman Gary Gensler to be fired, and pro-cryptocurrency candidate Donald Trump has pledged to fire Gensler if elected.
The Story of BitClout
BitClout launched in private beta in March 2021, allowing platform users to post for money. The blockchain social network allowed for short-form posts, and users could reward creators by clicking on the diamond icon.
Users can also purchase digital tokens linked to influencers’ identities and profiles. According to BitClout’s whitepaper at the time, the platform was preloaded with 15,000 influencer profiles. However, not all influencers and personalities were on board with the idea, and it was impossible to withdraw funds and assets from the protocol.
Alnaji successfully raised millions of dollars from investors including Andreessen Horowitz, Coinbase, and Pantera before US authorities intervened in 2021. a16z also funded Alnaji’s failed algorithmic stablecoin Basis in 2018.
Despite being funded by industry-leading backers, the decentralized social platform suffered from legal issues shortly after its launch.
Crypto law firm Anderson Kill PC issued a cease and desist order against BitClout on behalf of Brandon Curtis, the product team lead at Radar Relay. Curtis accused Al-Naji and his protocol of leveraging decentralized thinking for illicit activity.