The Securities and Exchange Commission (SEC) has brought charges against Nader Al-Naji, the founder of the once-hyped crypto startup BitClout, for fraud and conducting an unregistered offering of securities. Al-Naji allegedly raised over $257 million in cryptocurrency using a pseudonymous identity, known as "DiamondHands," to avoid regulatory scrutiny. Despite assurances to investors that funds from BitClout's token, BTCLT, would not be used for personal expenses, the SEC claims that Al-Naji spent over $7 million on lavish items like a Beverly Hills mansion and gifts for his family.

BitClout, a decentralized social media platform, attracted investments from prominent firms such as a16z, Sequoia, and Coinbase Ventures, among others. The SEC complaint accuses Al-Naji of misleading investors about the use of proceeds and alleges that his actions demonstrate fraudulent behavior. Despite facing backlash and legal challenges from the start, BitClout gained attention in 2021 for its unique concept of allowing users to buy and sell tokens based on people's online reputations.

Controversy surrounded BitClout as it faced criticism for attaching crypto tokens to profiles without consent, leading to public disputes with individuals like former Singapore Prime Minister Lee Hsien Loong. Investors had initially supported Al-Naji due to his previous venture, Basis, which raised $140 million in 2018 before returning funds to investors amidst regulatory challenges. Al-Naji's approach to building a decentralized social media platform pivoted to include a social stock market feature, which gained unexpected popularity and caused internal tensions among investors.

Key figures in the tech industry defended BitClout despite the scraping controversy, with notable investors like Andrew Chen from a16z and Michael Arrington endorsing the platform. The lack of a visible CEO and Al-Naji's hidden identity became focal points in the SEC's complaint, which highlighted deceptive practices in portraying BitClout as a decentralized entity. While Al-Naji has not responded to the allegations, he previously expressed confidence in BitClout's compliance with legal requirements, citing lessons learned from previous experiences with regulatory issues in the crypto space.