Software Maker John McAfee Charged in Cryptocurrency Scam

Conference of the States Parties to the United Nations Convention against Corruption (UNCAC) - COSP8. Photo: UNODC (Representational Image)
Conference of the States Parties to the United Nations Convention against Corruption (UNCAC) – COSP8. Photo: UNODC (Representational Image)

Software Maker John McAfee Charged in Cryptocurrency Scam

McAfee, Watson, and other members of McAfee’s cryptocurrency team allegedly raked in more than $13 million from investors they victimized with their fraudulent schemes.

John David McAfee and an executive adviser of his cryptocurrency team have been indicted in Manhattan Federal Court for fraud and money laundering conspiracy crimes.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced on March 5 the unsealing of the indictment.

It has charged John David McAfee, the founder of the McAfee antivirus software company, and Jimmy Gale Watson Jr., who served as an executive adviser of McAfee’s so-called cryptocurrency team (the “McAfee Team”) with conspiracy to commit commodities and securities fraud.

The charges also include conspiracy to commit securities and touting fraud, wire fraud conspiracy and substantive wire fraud, and money laundering conspiracy offenses stemming from two schemes relating to the fraudulent promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities.

Watson was arrested on March 4 in Texas. McAfee is currently detained in Spain on separate criminal charges filed by the United States Department of Justice’s Tax Division.

“As alleged, 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.

The defendants allegedly used McAfee’s Twitter account to publish messages to hundreds of thousands of his Twitter followers touting various cryptocurrencies through false and misleading statements to conceal their true, self-interested motives.

McAfee, Watson, and other members of McAfee’s cryptocurrency team allegedly raked in more than $13 million from investors they victimized with their fraudulent schemes.

“As alleged, McAfee and Watson used social media to perpetrate an age-old pump-and-dump scheme that earned them nearly two million dollars. Investment fraud and money laundering schemes carry a strict penalty under federal law,” FBI Assistant Director William F. Sweeney Jr. said.

During the period from in or about December 2017 through in or about October 2018, McAfee, Watson, and other members of the McAfee Team, perpetrated two fraudulent schemes relating to the promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities.

The first scheme involved a fraudulent practice called “scalping,” which is sometimes referred to as a “pump and dump” scheme. In the second scheme, McAfee, Watson, and other McAfee Team members also used McAfee’s official McAfee Twitter account to publicly tout fundraising events called “initial coin offerings” (“ICOs”).

In this scheme, startup businesses (“ICO issuers”) issued and sold digital tokens qualifying as securities to the investing public, without disclosing and, in fact, concealing that the ICO issuers were compensating McAfee and his team for his promotional tweets with a substantial portion of the funds raised from ICO investors.

As the United States Securities and Exchange Commission had publicly warned, and as McAfee and Watson well knew, the federal securities laws required them to disclose any compensation paid by ICO issuers for touting securities offerings styled as ICOs.

During the period from in or about December 2017 through in or about October 2018, McAfee and Watson caused another McAfee Team member to engage in banking transactions to launder proceeds of the fraudulent ICO touting scheme.

In separate parallel enforcement actions, the United States Securities and Exchange Commission (the “SEC”) and Commodity Futures Trading Commission (“CFTC”) have filed civil charges against McAfee and Watson.

McAfee, 75, and Watson, 40, who are United States citizens, are charged in a seven-count indictment. The allegations contained in the charging documents in this case are merely accusations, and the defendants are presumed innocent unless and until proven guilty. Click here to read the case details.

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Rakesh Raman