BitClout Founder Charged With Fraud

BitClout founder, Nader Al-Naji, was arrested and taken into custody on Saturday after being charged with fraud.

While supposedly sourcing investment for his social media-meets-cryptocurrency startup, BitClout, Nader Al-Naji allegedly defrauded an investor of approximately $3 million. Appearing before a US Magistrate Judge yesterday in California, Al-Naji misappropriated investment funds by lying about the intention behind the finances and then spending the money on personal expenses.

Who is Nader Al-Naji and what exactly is BitClout? We’re going to tell you everything you need to know about the defamed entrepreneur and the accusations made against him by authorities before giving you a quick crash course into how to identify a scam.

 

Who is Nader Al-Naji?

 

Referred to by many as “Diamondhands”, his self-proclaimed online pseudonym, Nader Al-Naji is a Californian entrepreneur who has been involved in the founding of a plethora of different social media and crypto-related companies, including the likes of Intangible Labs and Basis.

It’s his work with BitClout, however, that has landed him in serious trouble, raising many more questions about his previous funding and investment ventures in the world of tech startups.

BitClout, launched in 2021, is a combination of a social network and a crypto exchange. Essentially, the idea is that users can create their own profiles with coins (non-fungible tokens) associated with their accounts, and from there, BitClout users can buy and sell those coins to express their opinions on the people who have issued them. BitClout can be purchased using Bitcoin.

The platform is based on a novel premise, and its primary objective, according to BitClout itself, is to make use of blockchain technology to establish “digital permanence”. By means of buying and selling BitClout’s currency, users are supposedly given the opportunity to profit from their creation and trading.

So, what exactly did Nader Al-Naji do and what are his charges?

 

What Is Nader Al-Naji Accused of?

 

Al-Naji has been charged with both criminal and civil charges, which may result in prison time and financial repercussions.

The BitClout founder has been charged with wire fraud, and in addition to that, the US Securities and Exchange Commission (SEC) has filed charges against Al-Naji for alleged fraud and the unregistered offering and sale of cryptocurrency.

Since the company’s launch in 2021, Al-Najir has raised millions of dollars by offering investors the opportunity to purchase their crypto. He did this by promoting BitClout as being completely decentralised – that is, coins and code without a company behind it.

However, according to the SEC, this assertion of decentralisation was merely a method used by Al-Naji to attempt to avoid scrutiny by regulatory authorities. His scheme, according to the SEC, was to attract investment and then use the money for his own personal use.

In the end, this is exactly what he did, managing to bring in $257 million in a period of less than four years and then spending a significant amount of this money to “enrich himself”, according to the Wallstreet Journal. The founder diverted an estimated $7 million of investor capital towards the enrichment of not only himself but his relatives and other companies too.

But, that’s not all.

On top of the accusations of seriously misappropriated funds, the SEC has asserted that Al-Naji has not operated the offers and sales of BitClout’s native token, “BTCLT”, as he should have. In fact, he simply did not register these offers and sales at all. BTCLT was advertised as an investment opportunity that was expected to grow in value alongside the projected growth of the company.

This is how Al-Naji attracted such significant investment, but in reality, he was actually in complete control of the coins. He dictated everything to do with the issuing of tokens, which included who could make investments and the prices at which tokens were sold.

Essentially, it was Al-Naji’s failure to register BitClout’s activities, as well as his complete control over investment, that allowed him to do what he did.

And, he didn’t hide his use of the stolen funds. Al-Naji lived a lavish lifestyle in California, living in a six-bedroom mansion and showering his family with luxury gifts.

In addition to prosecuting authorities, the BitClout founder has faced serious backlash from other industry professionals and public figures, including Brandon Curtis and Lee Hsien Loong, co-founder of Rio Network and the former Prime Minister of Singapore respectively.

Nader Al-Naji faces up to 20 years in prison, among other potential fines, if he’s convicted of his charges.

 

 

How to Identify An Investment Scam

 

Many are left wondering, how did he get away with it for so long? How do business moguls manage to defraud investors, even if it’s not forever, and how can these schemes be identified in future?

Here are a few red flags, if you will, that may help industry experts identify potential scams or fraud.

 

1. Promises of Huge Profits with Minimal Risk

 

Some investments legitimately do provide the potential for significant profits, but make sure to have a good look at whether these supposed profits actually align with the investment and the company’s current trajectory.

The biggest red flag in terms of supposed big profits, however, is the supposition that there’s also minimal risk.

The idea of making huge profits without having to take much risk sounds great, but in reality, this is very rarely, if ever, the case.

So, if you’re offered what seems like a great investment opportunity that involves very little relative risk, you should probably think twice.

 

2. Not Registering Investment

 

Official investment has to be registered, there are no ifs, ands or buts. So, if a company attempts to offer an investment opportunity along with a story about why it doesn’t need to be registered, run a mile.

 

3. Investment Opportunities not Accompanied by a Prospectus 

 

Similarly, potential investors should always be provided with a prospectus that details the terms of the investment and more.

Generally speaking, no prospectus or excuses about the details being “too complicated” should immediately spell trouble.

 

4. Aggressive Sales Tactics 

 

Aggressive sales tactics are generally an indication that something may not be quite right, in all industries, and the same is true in terms of large-scale investments.

Big financial investments require a great deal of thought and understanding from both parties, so anyone who’s wanting to rush the process along may have altrior motives.

 

5. No Reliable Track Record 

 

Just like you would review the work experience of a potential employee, it’s always a good idea to check out the business’s track record, investment history in particular. A company without a track record at all isn’t necessarily problematic, but it may require a little bit of extra attention.

 

6. Refusal to Provide Proof of Investment 

 

Just like registering investments is an absolute non-negotiable, investors should never consider pledging funds and making an investment without receiving detailed proof of their investment in return.

 

Avoiding Investment Scams 

 

We hate to say it, but at the end of the day, if it’s too good to be true, it’s probably worth having a closer look at things.

While it’s always easier to identify red flags in hindsight, there certainly were indications that Nader Al-Naji may have been up to no good – if only investors had taken notice.

So, the lesson for investors is to do your research and always be sceptical. As for the future of BitClout and Nader Al-Naji, we’ll just have to see where the criminal proceedings go.