A Californian entrepreneur who Bitcoin culture using social media by letting people bet on the long run reputations of celebrities and influencers was arrested for fraud.
Nader Al-Naji, 32, was arrested in Los Angeles on Saturday. In New York, he was charged with wire fraud. On Tuesday, federal regulators filed civil charges against him.
He appeared in federal court in Los Angeles on Monday and was released on bail.
Authorities say Al-Naji lied to investors who poured lots of of tens of millions of dollars into his BitClout company. They say he promised to spend the cash only on the corporate, but as an alternative funneled tens of millions of dollars to himself, his family and a few of his company’s employees.
A lawyer for Al-Naji didn’t reply to an email in search of comment.
The U.S. Securities and Exchange Commission said in a civil lawsuit filed in federal court in Manhattan that Al-Naji began developing BitClout in 2019 as a social media platform with an interface that promised to turn into a “new type of social network that blends speculation and social media.”
The BitClout platform invited investors to monetize their social media profiles and put money into the profiles of others through “creator coins” whose value was “linked to a person’s reputation” or their “position in society,” the commission said.
It said any platform user could generate a coin by making a profile, while BitClout would preload profiles for “Twitter’s top 15,000 influencers” onto the platform and “mint” or create coins for them.
If any of the chosen influencers join the platform and claim their profile, they might receive a percentage of the coins related to their profile, the SEC explained.
In promotional materials, BitClout stated that its coins were “a new type of asset class tied to the reputation of an individual rather than a company or commodity,” the regulator said.
“This allows people who believe in a person’s potential to buy their coin and be financially successful with it if that person recognizes their potential,” BitClout said in its promotional materials, in response to the Securities and Exchange Commission.
From late 2020 to March 2021, Al-Naji solicited investments from enterprise capital funds and other distinguished investors within the crypto asset community to finance the event of BitClout, the commission said.
He is claimed to have told potential investors that BitClout was a decentralized project with “no company behind it… just coins and code,” and that he adopted the pseudonym “Diamondhands” to hide his leadership and control of the corporate.
The U.S. Securities and Exchange Commission (SEC) said he told a possible investor: “My impression is that even ‘false’ decentralization generally confuses regulators and prevents them from taking action against you.”
In total, BitClout raised $257 million from investors for its treasury wallet without registering with the U.S. Securities and Exchange Commission as required, the agency said.
In the meantime, BitClout had “spent significant amounts of investor funds on expenses that were completely unrelated to the development of the BitClout platform,” despite promising investors that this might not occur.
The U.S. Securities and Exchange Commission (SEC) said Al-Naji used investors’ money to support himself, including paying rent on a six-bedroom mansion in Beverly Hills, and gave extravagant money gifts price at the very least $1 million each to his wife and mother, in addition to making private investments in other crypto asset projects.
Al-Naji was also said to have transferred investor funds to BitClout developers, programmers and promoters, contrary to his public statement that he wouldn’t use investor proceeds to compensate himself or members of BitClout’s development team.
