Antivirus software innovator John McAfee and his bodyguard have been indicted on fraud and money laundering conspiracy charges for fraudulently touting various cryptocurrencies on Twitter to further two separate schemes, Manhattan federal prosecutors said Friday.
McAfee Associates founder John McAfee, shown here in September 2017, has been indicted on fraud and money laundering conspiracy charges, prosecutors said Friday. (Anthony Kwan/Bloomberg via Getty Images)
Between December 2017 and October 2018, McAfee and private security guard, Jimmy Gale Watson Jr. tricked investors into buying over a dozen different digital currencies in a pair of scams that allegedly netted the two men a combined $13 million in profits, according to a seven-count indictment unsealed Friday. Watson was also “executive advisor” of McAfee’s so-called cryptocurrency team, prosecutors said.
In what’s known as a “pump-and-dump” or “scalping” scheme, McAfee and Watson loaded up on inexpensive virtual currencies including verge, Tron, and dogecoin before publicly endorsing them on McAfee’s Twitter account, the government said.
McAfee’s account, @officialmcafee, had over 784,000 followers in February 2018, according to prosecutors. It boasted 1 million followers as of Friday afternoon.
After artificially inflating the value of the coins, McAfee and Watson dumped their holdings at an increased price, raking in about $2 million, according to the indictment.
The two alleged co-conspirators also used McAfee’s Twitter account to promote initial coin offerings without telling investors they were being paid for those promotions, prosecutors said. The pair earned a collective $11 million paycheck for endorsing the ICOs, and took steps to conceal those payments from investors, the indictment says.
Federal securities laws dictate that people who tout ICOs must disclose any compensation they receive in return.
“McAfee and Watson exploited a widely used social media platform and enthusiasm among investors in the emerging cryptocurrency market to make millions through lies and deception,” Manhattan U.S. Attorney Audrey Strauss said in a statement Friday.
McAfee and Watson face an array of securities, commodities, and wire fraud conspiracy charges, as well as wire fraud and money laundering conspiracy, according to the indictment.
Watson, a decorated former Navy Seal, “looks forward to his day in court,” defense counsel Arnold Spencer of Spencer & Associates told Law360 on Friday.
“Criminal indictments are blunt instruments, not precise scalpels,” Spencer said. “Criminal courts are not the right place to debate whether cutting-edge technologies like cryptocurrencies are securities, commodities, or something else.”
While Watson was arrested Thursday night in Texas and was set to appear in court there Friday, McAfee has been detained in Spain since October, when the U.S. Department of Justice unsealed tax evasion charges against him. The 75-year-old embattled inventor is currently awaiting extradition to the United States.
Tennessee federal prosecutors in the tax evasion case claim McAfee funneled his income through bank and cryptocurrency accounts in the names of others. McAfee failed to file tax returns from 2014 to 2018 despite receiving “considerable income” from promoting cryptocurrencies, speaking engagements, and selling the rights to his life story, the government says.
According to that indictment, McAfee directed his income to be paid into bank and cryptocurrency accounts that were each “in the name of a nominee,” allowing him to evade tax liability.
Hours before the announcement of McAfee’s arrest, the U.S. Securities and Exchange Commission launched an enforcement action in New York federal court claiming McAfee and Watson pulled in $23.1 million in undisclosed compensation for talking up seven initial coin offerings on Twitter during the most volatile boom-bust cycle in the history of cryptocurrency.
The alleged securities law violations occurred against the backdrop of Bitcoin’s historic rise from $1,000 to $20,000 in 2017, during which McAfee took to Twitter to predict the flagship cryptocurrency would reach $500,000, and in a later prediction, $1 million, by the end of 2020. The SEC pointedly notes that the brash gadfly promised in one post to “eat my d**k on national television” if his predictions did not pan out, and later admitted that his price predictions were a “ruse” to “onboard new users.”
Between June and December 2017, McAfee increased his Twitter followers eightfold as he continued trumpeting Bitcoin’s ascendancy and started receiving requests to promote new digital asset offerings, the SEC alleges. He agreed to do so for a cut of the offering proceeds and/or straight payments in bitcoin, the agency said, and would promote the tokens while simultaneously warning followers that the digital tokens he was not promoting were “jokes or outright scams.”
The U.S. Commodity Futures Trading Commission also filed its own enforcement action against McAfee and Watson in New York on Friday over the pump-and-dump scheme.
Representatives for McAfee’s eponymous company, McAfee LLC, did not immediately respond Friday to requests for comment. No counsel is listed for McAfee in any of the four cases.
Watson is represented in the criminal case by Arnold A. Spencer of Spencer & Associates.
The government is represented in the instant criminal case by Samson Enzer and Elizabeth Hanft of the U.S. Attorney’s Office for the Southern District of New York.
It is represented in the tax evasion case by William Guappone of the DOJ’s Tax Division and Matthew Wilson and Damon Griffin of the U.S. Attorney’s Office for the Western District of Tennessee.
The SEC is represented in-house by Jorge G. Tenreiro, David H. Tutor, and Jon A. Daniels.
The CFTC is represented in-house by Alejandra de Urioste, Gates S. Hurand, David Oakland, and K. Brent Tomer.
The cases are the U.S. v. McAfee, case number 21-cr-00138, in the U.S. District Court for the Southern District of New York; U.S. v. McAfee, case number 1:20-cr-10029, in the U.S. District Court for the Western District of Tennessee; SEC v. McAfee et al., case number 1:20-cv-08281, in the U.S. District Court for the Southern District of New York, and CFTC v. McAfee et al., case number 1:21-cv-01919, in the U.S. District Court for the Southern District of New York.
Blog by Law 360.com
–Additional reporting by Dean Seal. Editing by Marygrace Murphy.
