A California entrepreneur who tried to merge bitcoin culture with celebrities and social media has been arrested on fraud charges.

July 30, 2024, 4:45 PM ET

• 3 min read

NEW YORK — A California businessman who sought to merge the bitcoin culture with social media by allowing people to bet on the future reputation of celebrities and influencers was arrested on fraud charges.

Nader Al-Naji, 32, was arrested in Los Angeles on Saturday on a wire fraud charge filed against him in New York, and civil charges were filed against him by federal regulators on Tuesday.

He appeared in federal court Monday in Los Angeles and was released on bail.

Authorities said Al-Naji lied to investors who poured hundreds of millions of dollars into his BitClout venture. They say he promised the money would be spent solely on the business, but instead directed millions of dollars to himself, his family and some of his company’s workers.

A lawyer for Al-Naji did not respond to an email seeking comment.

The Securities and Exchange Commission said in a civil complaint filed in Manhattan federal court that Al-Naji began designing BitClout in 2019 as a social media platform with an interface that promised to be a “new type of social network that blends speculation and social media.”

The BitClout platform invited investors to monetize their social media profiles and invest in the profiles of others through “Creator Coins,” whose value was “linked to an individual’s reputation” or their “position in society,” the commission said.

He said each user on the platform was able to generate a coin by creating a profile, while BitClout pre-loaded profiles for the “top 15,000 Twitter influencers” on the platform and had coins “minted” or created for them.

If any of the designated influencers joined the platform and claimed their profiles, they could receive a percentage of the coins associated with their profiles, the SEC said.

In promotional materials, BitClout said its coins were “a new type of asset class that is tied to the reputation of an individual, rather than a company or commodity,” the regulator said.

“So people who believe in someone’s potential can buy their coin and become financially successful with it when that person realizes its potential,” BitClout said in its promotional materials, according to the Securities and Exchange Commission.

From late 2020 through March 2021, Al-Naji solicited investments to fund BitClout’s development from venture capital funds and other prominent investors in the crypto community, the commission said.

He said he told potential investors that BitClout was a decentralized project with “no company behind it… just coins and code” and adopted the pseudonym “Diamondhands” to hide his leadership and control of the operation.

The Securities and Exchange Commission said he told a potential investor: “My impression is that even though it’s ‘fake,’ decentralized generally confuses regulators and keeps them from going after you.”

In total, BitClout generated $257 million for its wallet from investor treasuries without registering, as required, with the Securities and Exchange Commission, the agency said.

Meanwhile, he said, BitClout spent “significant amounts of investor funds on expenses that had no bearing on the development of the BitClout platform,” despite having promised investors that this would not happen.

The Securities and Exchange Commission said Al-Naji used investor funds to pay his own living expenses, including rent on a six-bedroom mansion in Beverly Hills, and gave extravagant cash gifts of at least $1 million each to his wife and mother, in addition to funding personal investments in other cryptocurrency projects.

He said Al-Naji also transferred investor funds to BitClout developers, programmers and promoters, contradicting his public statements that he would not use investor profits to compensate himself or members of the BitClout development team.

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