The founder of the once-hyped cryptocurrency startup BitClout is in trouble. On Tuesday, The SEC has charged BitClout founder Nader Al-Naji committed fraud and an unregistered securities offering, claiming he used an alias to avoid regulatory scrutiny while raising greater than $257 million in cryptocurrency.

BitClout, a decentralized social media platform, was founded by notable corporations like a16z, Sequoia, Chamath Palihapitiya’s Social Capital, Coinbase Ventures, and Winklevoss Capital. Many of these notable investors were involved in the corporate’s roughly $7 million seed round, with Sequoia investing $1 million and a16z $3 million, based on sources near the seed round on the time.

The SEC grievance alleges that Al-Naji, known by his online pseudonym “DiamondHands,” told investors that proceeds from the platform’s token, BTCLT, wouldn’t be used to pay him or employees. However, the SEC alleges that he spent greater than $7 million on personal expenses, comparable to a Beverly Hills mansion and gifts for his family. Al-Naji didn’t reply to a request for comment. A source near Al-Naji said the mansion was used for business purposes, and a number of other BitClout employees lived there and hosted company-sponsored events at the house.

The grievance is the newest for an organization that has been no stranger to controversy since its inception. When it launched in 2021, BitClout was imagined to be a social cryptocurrency exchange where users bought and sold tokens based on people’s reputations. It created a stir and drew criticism by acquiring 15,000 profiles from the corporate then often known as Twitter and assigning crypto tokens to celebrities. It essentially created an exchange for celebrities, with the value of the tokens rising and falling based on how popular the person was.

The public – and legal – response was swift. Brandon Curtis, co-founder of cryptocurrency firm Rio Network, Al-Naji hit with a stop and desist letter stating that BitClout used his image without consent. Lee Hsien Loong, former Prime Minister of Singapore, even filed public appeal asking for his BitClout profile to be deleted. “This is misleading and was done without my consent,” he wrote on Facebook.

At the time, many wondered why such a well-respected company would back such a polarizing idea. Sources near the corporate explained that Al-Naji had gained goodwill in cryptocurrency circles from his previous company, Basis. In 2018, the Princeton graduate raised a staggering $140 million to create a stablecoin. However, shortly after, Al-Naji realized that the regulatory environment was too inhospitable to cryptocurrencies and decided to return the cash, based on the source. According to an individual near Al-Naji, investors got back about 93 cents on the dollar.

So in early 2021, when Al-Naji approached investors with a brand new idea, they were willing to present him a second likelihood. According to sources near the corporate, Al-Naji raised his seed round on a broad presentation of a decentralized social media platform, and not using a concentrate on the social stock market. But then, in April, Al-Naji quietly planned to check a stock feature by locking it away behind a password-protected website. The password was quickly leaked, and the feature went viral, suddenly becoming an enormous point of interest for Al-Naji. That upset several investors, based on multiple sources. The company eventually went back to its original presentation, focusing as a substitute on its DeSo Blockchain, a blockchain “built specifically for decentralizing social networks,” based on the BitClout website.

Still, within the wake of the scrapping scandal, many tech giants publicly defended BitClout. Investors like a16z’s Andrew Chen, Michael Arrington, and angel investor Shaan Puri poured 1000’s into buying tokens on the platform. Chen Sent on BitClout a few month after launch, writing about how the app takes a “really interesting approach” by incentivizing users with financial rewards. And in a post by Shaun Maguire of Sequoia Capital, investor praised Al-Naji’s “groundbreaking vision” and called BitClout “instantly electrifying.”

The polarization between those indignant about being “traded” on BitClout without their consent and people defending the startup was made much more complicated by the incontrovertible fact that there was no CEO to talk to on behalf of the corporate. Al-Naji’s hidden identity is one of the important thing elements of the SEC grievance, which alleges that he made BitClout seem like “there was no company behind it… just coins and code,” while allegedly raking in thousands and thousands of dollars in profits, the commission said.

“Al-Naji attempted to circumvent federal securities law and defraud investors by mistakenly believing that being ‘fake’ decentralized generally confuses regulators and stops them from pursuing you,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in an announcement released by the SEC. “He is patently mistaken.”

Sequoia and a16z declined to comment.

While Al-Naji has yet to talk out on the allegations, he has previously expressed confidence in his company’s legal foundation. At an event in late 2021, he reflected on his previous cryptocurrency company and the way he spent $10 million on lawyers. The lawyers, he said, taught him every little thing he could about securities and cryptocurrency law—lessons he took with him to BitClout. “I learned a lot,” he said. “And I think we did it right this time.”