The founding father of once-hyped crypto startup BitClout is going through bother. On Tuesday, the SEC charged BitClout founder Nader Al-Naji with fraud and unregistered providing of securities, claiming he used a pseudonymous id to keep away from regulatory scrutiny whereas he raised over $257 million in cryptocurrency.
BitClout, a decentralized social media platform, raised from a who’s-who of corporations, like a16z, Sequoia, Chamath Palihapitiya’s Social Capital, Coinbase Ventures and Winklevoss Capital. Many of those massive identify buyers had been in on the firm’s roughly $7 million seed spherical, with Sequoia investing $1 million and a16z investing $three million, in line with sources near the seed spherical on the time.
The SEC criticism alleges that Al-Naji, recognized by his on-line pseudonym “DiamondHands,” informed buyers that proceeds from the platform’s token, BTCLT, wouldn’t be used to pay himself or staff. But the SEC alleges that he spent over $7 million on private bills, like a Beverly Hills mansion and items for his household. Al-Naji didn’t reply to a request for remark. A supply near Al-Naji mentioned the mansion was used for enterprise functions, with a number of BitClout staff residing there and throwing company-sponsored occasions on the house.
The criticism is the newest for a corporation that has been no stranger to controversy from the beginning. In 2021 when it was launched, BitClout was supposed to be a social crypto-exchange the place customers purchased and offered tokens primarily based on individuals’s reputations. It made waves and earned criticism by scraping 15,000 profiles from the corporate then often called Twitter and attaching crypto tokens to celebrities. It primarily created a inventory marketplace for well-known individuals, with the value of the tokens rising and falling primarily based on how fashionable the individual was.
The public – and authorized — backlash was swift. Brandon Curtis, cofounder of crypto firm Rio Network, hit Al-Naji with a cease-and-desist letter, saying BitClout used his likeness with out consent. Lee Hsien Loong, the previous Prime Minister of Singapore, even made a public plea asking for his BitClout profile to be eliminated. “It is misleading and done without my permission,” he wrote on Facebook.
At the time, many puzzled why such esteemed corporations had backed such a polarizing idea. Sources near the corporate defined that, in crypto circles, Al-Naji had earned goodwill after his earlier firm, Basis. In 2018, the Princeton grad had raised a whopping $140 million to create a stablecoin. But shortly after Al-Naji realized the regulatory setting was too inhospitable to crypto and he determined to return the cash, these sources mentioned. Investors obtained again about 93 cents on the greenback, in line with an individual near Al-Naji.
So, in early 2021, when Al-Naji approached buyers with a brand new thought, they had been inclined to present him a second likelihood. According to sources near the corporate, Al-Naji raised his seed spherical on the broad pitch of a decentralized social media platform, with no emphasis on the social inventory market. But then, in April, Al-Naji supposed to quietly check the inventory market function, locking it behind a password-protected webpage. The password promptly leaked and the function went viral, instantly turning into an enormous focus for Al-Naji. This upset a number of buyers, in line with a number of sources. The firm ultimately steered again to its unique pitch, focusing as a substitute on its DeSo Blockchain, a blockchain “built specifically for decentralizing social networks,” in line with the BitClout web site.
Still, instantly after the scraping brouhaha, loads of tech bigwigs publicly defended BitClout. Investors like a16z’s Andrew Chen, Michael Arrington and angel investor Shaan Puri poured hundreds into shopping for tokens on the platform. Chen posted on BitClout a couple of month after its launch, writing about how the app has a “really interesting approach” by incentivizing customers with monetary rewards. And, in a publish…
