A California entrepreneur who sought to merge the bitcoin culture with social media by letting people bet on the future reputation of celebrities and influencers has been arrested on a fraud charge. Nader Al-Naji, 32, was apprehended in Los Angeles on Saturday, facing a wire fraud charge filed against him in New York. Civil claims were also initiated against him by federal regulatory authorities on Tuesday. Al-Naji appeared in federal court on Monday in Los Angeles and was released on bail.
Authorities allege that Al-Naji deceived investors who poured hundreds of millions of dollars into his BitClout venture. He purportedly promised that the investments would be solely used for the business, but instead, diverted millions to himself, his family, and some of his company’s workers. A lawyer representing Al-Naji did not respond to an email seeking comment.
The Securities and Exchange Commission (SEC) outlined its allegations in a civil complaint filed in Manhattan federal court. They claim that Al-Naji began designing BitClout in 2019 as a social media platform with a unique interface. This interface promised to be a “new type of social network that mixes speculation and social media,” according to the SEC. The BitClout platform enticed investors to monetize their social media profiles and invest in the profiles of others through “Creator Coins.” The value of these coins was claimed to be “tied to the reputation of an individual” or their “standing in society.”
The SEC further stated that each platform user had the ability to generate a coin by creating a profile. BitClout, however, preloaded profiles for the “top 15,000 influencers from Twitter” onto the platform and minted coins for them. If any of these designated influencers joined the platform and claimed their profiles, they could receive a percentage of the coins associated with their profiles. In its promotional materials, BitClout touted its coins as “a new type of asset class that is tied to the reputation of an individual, rather than to a company or commodity.” BitClout’s promotional materials, according to the SEC, boasted: “Thus, people who believe in someone’s potential can buy their coin and succeed with them financially when that person realizes their potential.”
Between late 2020 and March 2021, Al-Naji solicited investments to fund BitClout’s development from venture capital funds and other prominent investors in the crypto-asset community. The SEC alleges that he told prospective investors that BitClout was a decentralized project with “no company behind it … just coins and code.” He adopted the pseudonym “Diamondhands” to conceal his leadership and control over the operation. The SEC claims that he told one prospective investor: “My impression is that even being ‘fake’ decentralized generally confuses regulators and deters them from going after you.”
In total, BitClout garnered $257 million for its treasury wallet from investors without registering with the SEC, as required by regulations. The agency contends that BitClout spent “significant sums of investor funds on expenses that were entirely unrelated to the development of the BitClout platform,” despite assuring investors that would not be the case. The SEC claims that Al-Naji used investor funds to cover his own living expenses, including renting a six-bedroom Beverly Hills mansion. He also gave lavish cash gifts of at least $1 million each to his wife and mother, as well as funding personal investments in other crypto asset projects. The SEC further alleges that Al-Naji transferred investor funds to BitClout developers, programmers, and promoters, contradicting his public statements that he would not use investor proceeds to compensate himself or members of BitClout’s development team.
