Al-Naji, a gifted story teller, would also take his place among the American elite. He built a network among the cream of Silicon Valley where he dangled world-changing visions, leading investors to later describe him as a startup founder out of central casting. Al-Naji would ultimately charm the likes of Sequoia, Google and Bain into pouring hundreds of millions of dollars into his startups. But his bold visions rested on illusion.

Al-Naji’s first venture—a too-good-to-be-true currency startup—failed, but he persuaded investors that the dubious operation had been a learning experience. Soon he re-emerged with an even more audacious scheme: a social network launched by an alter-ego named Diamondhands that, without asking permission, turned people into commodities that could be traded as cryptocurrencies. This too collapsed.

Despite these debacles—which in hindsight were based on far-fetched ideas—many of Al-Naji’s backers continued to support him. In July, though, Al-Naji’s luck ran out. The Justice Department arrested him and, along with the Securities and Exchange Commission, accused him of looting investors’ money to live large in Beverly Hills and make $1 million cash transfers to family members. Al-Naji has since described the allegations as a “mistake” on the part of the U.S. government.

On one level, Al-Naji’s capers are just another dog-bites-man tale of a crypto bro ripping off his backers. But they also raise a deeper question: How was “Diamondhands” able to snooker the elite of Silicon Valley—people who regard themselves as the smartest investors in the room? Meanwhile, the situation has placed the most prominent of those investors—the venture capital firm Andreessen Horowitz—in a new and awkward role: fraud victim and witness for the prosecution.

Princeton days

Nick Bax is the CEO of a crypto forensics firm and regularly testifies as an expert witness. Looking back to his Princeton crew days, he recalls a grueling year-round training regime that took up 25 hours a week, and saw ambitious young men striving to outdo each other. Even in this crowd, Al-Naji stood out,

“Everyone knew him,” says Bax. “Nader was a fast rower and outgoing. We knew he was ambitious and a high achiever even by Princeton standards.”

Al-Naji’s time at Princeton also saw him pursue a very different pastime: cryptocurrency. According to his LinkedIn profile, he graduated a year early summa cum laude, but also “Mined ~23 Bitcoin on free campus electricity :).”

Upon receiving his computer science degree, Al-Naji’s path soon mirrored many other top Ivy League graduates as he pursued stints at prestigious firms in finance and tech—in his case, the hedge fund D.E. Shaw and Google. In mid-2017, however, Al-Naji left the search giant to strike out on his own. He became founder and CEO of a crypto startup called Basis.

The new startup embodied attributes that would become a staple of Al-Naji projects: a bold and disruptive vision wrapped in technical argot that, if one scratched below the surface, turned out to be too good to be true.

In the case of Basis, the illusion came in the form of a new type of stablecoin (a digital currency that is supposed to maintain a fixed price) that did not rely on reserves to back it, but instead a marvelous algorithm. If the price of Basis rose above $1, the algorithm would issue new shares that could be redeemed for the stablecoin, thereby driving down the price. If it fell below $1, Basis would sell bonds at a discount that could later be redeemed at full value. This suggested, improbably, that the supply of Basis coins would keep expanding through dilution yet maintain a constant value.

Many were skeptical. One crypto observer called Basis a scheme to turn lead to gold, pointing out that Basis relied on “a first-in first-out basis—which is how payments are made in a pyramid scheme.” (Basis skeptics would be vindicated three years later in 2021 when Terra, another algorithmic stablecoin project with the same design, fleeced investors for over $200 million and triggered a broader implosion in the crypto sector. Its founder had run a smaller version of the project using a token called Basis Coin.)

Despite the shaky economic premise of Basis, Al-Naji quickly raised $133 million for the project from well-heeled investors, including Andreessen Horowitz, Google Ventures, Bain Capital Ventures and a former Federal Reserve governor.

The Basis project fizzled, however, nine months after its initial fundraising bonanza in October of 2017. After a period of quiet following the initial hype, Al-Naji announced he would cancel the project due to regulatory challenges, and that he would return the funds to investors minus expenses incurred.

One VC who invested in the project, though, cast doubt on the public explanation, telling Fortune that Al-Naji chose not to go forward with Basis because he had concluded it didn’t work.

Whatever led to Basis’s unraveling, it’s remarkable that such a sophisticated collection of investors could bet on the project in the first place, given that it appeared to defy basic laws of economics. One explanation is that the nature of venture capital involves taking chances on ideas that at first blush seem crazy. Another is Al-Naji’s biography.

Many venture capitalists rely heavily on what they call pattern matching—looking for entrepreneurs whose profile and track record resembles previous success stories. In the case of Al-Naji, he presented a near perfect match. In interviews for this story, two VCs from different firms who backed Al-Naji projects used the same phrase to describe him: “out of central casting.” The description applied to his educational and work background, but also to a demeanor that brimmed with confidence.

Another venture capitalist who invested in one of Al-Naji’s ventures, who like others asked not to be identified so he could speak candidly about a founder, noted that he resembled another notorious crypto figure who exploited the VC world’s fondness for pattern matching.

“He had very similar traits in retrospect. Now, looking at it in hindsight, like Sam Bankman-Fried, he talked way too fast, used language that you probably didn’t understand all of the time, but gave the sense that he was a good guy and of high integrity,” said the VC.

A fourth VC, who invested in two of Al-Naji’s startups, offered a more clinical take based on his previous experience assessing situations where a founder goes wrong.

“Half the job on all these stories is to just figure out if someone’s a psychopath or a narcissist,” said the VC. “I actually never gave much thought to whether he is one or the other, but to me it looks like he leans narcissist.”

Meanwhile, there are questions about how Al-Naji, who has said he returned over 90% of the money invested in Basis, spent the funds he did not return. In 2021, he explained to TechCrunch, “That $10 million that I didn’t [return to investors] was actually spent all on lawyers, learning … I learned a lot.”

Several Al-Naji investors, though, expressed incredulity that a small startup could spend $10 million on lawyers in the span of a few months.

Al-Naji did not respond to a request for comment on Basis and what became of the rest of the money.

Diamondhands is born

In 2021, the biggest crypto boom in history was in full swing. Elon Musk used a Saturday Night Live appearance to pump Dogecoin to new heights, and crypto bros jostled to drop millions of dollars on digital monkeys. In Silicon Valley and New York, venture firms had amassed billions in dry powder to invest in crypto projects.

It was the was perfect time for Al-Naji’s next act. When he reemerged, it was in the guise of “Diamondhands”—a pseudonymous character who, as part of Al-Naji’s latest illusion, would launch a decentralized social network and then fade into the mists of the Internet, just like Bitcoin’s creator Satoshi Nakamoto had years before.

When he launched Basis, Al-Naji had pitched it as a breakthrough in the field of economics. His plan for a social network was even more grandiose. Bitclout, as it was known, would disrupt the likes of Facebook and Twitter with a new platform that lacked any controlling authority or centralized servers. It would be run with “just code and coins.”

To jumpstart BitClout, Al-Naji turned to what Silicon Valley calls growth hacking. This included scraping the profiles of 15,000 Twitter users—including Musk, the former President of Singapore Lee Hsien Loong, and crypto journalists including me—to populate the new network. The site itself looked like a hastily made Twitter knock-off.

The name Bitclout harked back to Klout, a failed social network that ranked people based on their perceived influence—a project panned by many as “Yelp for people.” Al-Naji took the concept a step further by encouraging Bitclout users to buy and sell tokens whose worth would be tied to the identities of people on the site. In order to speculate on people’s worth, users had to swap Bitcoin for a new cryptocurrency named after the site.

Like Basis, the idea seemed half-baked. For starters, no one—even in crypto circles—could explain the decentralized “just code and coins” technology that Al-Naji was touting. Meanwhile, Al-Naji’s decision to pre-populate the network with existing Twitter profiles was rightfully viewed as a massive intellectual property violation. The Singapore President publicly denounced the project, while a law firm sent a cease and desist on behalf of a client.

Then there was the faux mystery surrounding “Diamondhands,” a name inspired by crypto slang for those who don’t sell when the market dives, but that did little to obscure that Al-Naji was behind Bitclout. (The charade included Al-Naji conducting a 2021 interview with me over Telegram in his Diamondhands persona even after I had signaled I knew his real identity).

When Al-Naji published the Bitclout website in March of 2021, he shared the link for the site’s URL with others, half-heartedly telling them not to share it. Inevitably, or course, they did just that and, when the link spread far and wide, Al-Naji claimed the resulting publicity was an unfortunate accident—even though every indication suggests the roll-out was planned in this way as a further bit of growth hacking.

While the earlier Basis debacle might have given investors pause about backing another Al-Naji project, a soaring crypto market meant the Valley was in one of its periodic check-writing frenzies. Prominent firms not only invested in Al-Naji once again but agreed to go along with the Diamondhands charade by not revealing his identity.

Firms like Andreessen Horowitz and Coinbase Ventures had come to arrangements with Al-Naji months before Bitclout launched to purchase tokens at the pre-sale price of $6 (for latecomers it was $16). While many of Bitclout’s backers had also invested in Basis, the new project also attracted newcomers like Sequoia, the crypto-snakebitten VC firm that would go on to lose $214 million investing in Sam Bankman-Fried.

As it had done with the disgraced FTX founder, Sequoia published a fawning profile of “Diamondhands.” The profile included an explanation of why BitClout did not have executives, a board or any of the other standard corporate mechanisms that can provide accountability.

“There is no CEO, board, or shareholders of BitClout—just token holders. They [Diamondhands] believe that an open, blockchain-based organization where the direction is set by the community with no corporate entity to compete with—or be shut down by—will outcompete social media’s traditional ads-driven business model,” wrote Sequoia, which did not respond to multiple requests for comment for this story.

When BitClout went live, the early token buyers soon found themselves in the money as the site’s namesake token shot up to nearly $200. The good times lasted only a few months though, as Al-Naji—as he had done with Basis—announced he was walking away from the project, claiming it had been a “beta test” all along that was never supposed to have gone as far it did. Instead, he would plow the proceeds from Bitclout, whose token trades for $0 today, into yet another venture dedicated to decentralized social networks. Meanwhile, retail investors who had exchanged Bitcoin for Bitclout tokens on the site found they could not convert the tokens back to Bitcoin.

According to the Securities and Exchange Commission, Al-Naji raised $257 million from the sale of Bitclout to investors and the general public and—contrary to the “just coins and code” mumbo-jumbo—had direct access to the funds. In court documents, the agency alleges he used Bitclout proceeds to pay for credit card bills and a six-bedroom house in Beverly Hills, and to make nearly $3 million in gifts to family members. It is unclear based on court filings what became of the rest of the money.

Star witness

The headquarters of Andreessen Horowitz can be found on Sand Hill Road, a picturesque artery that winds downhill from Interstate 280 past Stanford University. In the past decade, Andreessen—which likes to call itself a16z—has parlayed massively successful early bets on the likes of Facebook and Airbnb into a multi-billion-dollar business empire and, more recently, into political and cultural influence. The firm also aggressively—and effectively—promulgates its own mythology, leading some to joke that it is a public relations shop masquerading as a VC firm.

More recently, it has taken on a new and unlikely identity: the fraud victim known as “Investor 1” in a Justice Department complaint accusing Al-Naji of criminal wrongdoing.

Andreessen Horowitz’s role in the case comes as a surprise since, in the case of Bitclout, it only invested $3 million—a pittance for a firm that regularly makes bold bets of $100 million or more on startups—and since the firm is sensitive to negative publicity.

“Generally speaking, funds don’t rat on their entrepreneurs. They just take the loss and shut up,” a crypto lawyer familiar with Bitclout told Fortune. “When a fund gets burned, they don’t go after the entrepreneur because it’s ugly and it’s bad press, and they just take it on the chin.”

Venture capitalists interviewed for this story agreed with that assessment, noting that firms are reluctant to become involved in public legal proceedings lest it create an impression they are not friendly to the community of startup founders they seek to back.

According to the crypto lawyer, Andreessen’s role as witness likely came about pursuant to documents the Justice Department subpoenaed as part of its investigation—obliging the firm to take on the role of fraud victim whether it wished to be or not. This theory is supported by a court filing in the case, which cites emails from the venture firm and notes made by its staff as evidence.

Renato Mariotti, a former federal prosecutor who is now a white-collar defense lawyer at Paul Hastings, says this arrangement would also be consistent with a broader strategy of the Justice Department in this type of case. “It helps to have a victim who says ‘I lost money and they lied’,” he said.

Whatever has transpired in recent months, Andreessen Horowitz, which declined to comment for this story, did not seem to hold any ill will towards Al-Naji in the immediate aftermath of Bitclout. In fact, the firm appears to have gone along with his plan to plow Bitclout’s funds into a new social network venture called the Deso Foundation. The foundation is ostensibly decentralized and designed to support other crypto ventures, but has only made three very modest investments, the most recent of which came in early 2023, according to Crunchbase.

Among the offerings to emerge from DeSo is an Al-Naji-backed venture called DAODAO for organizing decentralized communities that let people invest in NFTs that included “The Bronze Ticket,” “The Silver Ticket” and “The Gold Ticket.” In a 2002 interview, Nader explained to me that the venture represented “an opportunity for the next [thing] to be owned by the people.”

Al-Naji was arrested in mid-July in Los Angeles where he was arraigned in federal court on fraud charges. According to Mariotti, if he is found guilty, he likely faces three to six years in prison in light of the amount of the money he allegedly stole, and the substantial evidence the Justice Department has introduced—including a taped phone call with his brokerage where Al-Naji falsely stated that the deposit of over $13 million into a personal account came from “family overseas.” Court filings show Al-Naji’s lawyers—he has retained attorneys from several elite firms—are in talks with Justice Department, but so far there has been no settlement or formal plea in response to the criminal charges.

For now, Al-Naji appears untroubled by his legal predicament. In response to a request to share his version of events, he politely demurred.

“I’d really love to help out but I just have to be conservative with my comms right now. I’m sure it will be a thoughtful piece, though, and I’ll definitely reach out as soon as I’m able to tell the full story and we’ll catch up and have a good chat about it,” he wrote by Telegram.

Meanwhile, he has been active on a new social media called platform Diamond, where his followers have expressed concern that the promised launch of a token called Focus could be delayed by his arrest. He has sought to allay those concerns in a series of video and text posts, including one where he suggests the U.S. government had made a mistake in charging him and that the matter would be cleared up. In another, he muses the publicity could be a benefit.

“But after thinking about it a bit and discussing it, it’s not totally obvious what the impact will be, and it could even be net positive. On the one hand, if there’s negative “follow-on” press when we launch Focus, that could hurt peoples’ willingness to share the app. But on the other hand it would also cause more people to know about it,” he wrote.