Adalberto ROQUE / AFP / Getty
Federal prosecutors have indicted the notable cybersecurity eccentric John McAfee for actions and electronic fraud to deceive investors at the height of the latest cryptocurrency boom. In late 2017 and early 2018, McAfee encouraged its hundreds of thousands of Twitter followers to invest in a series of obscure cryptocurrencies. Prosecutors say he did not disclose his own financial stake in those files – and in some cases he lied openly about it.
McAfee has been in custody in Spain since his arrest at a Barcelona airport last October. He was already facing extradition to the United States on charges of tax evasion; the self-styled Libertarian has not filed an income tax return for several years. Now he will face additional charges of securities fraud and wire transfers alongside bodyguard Jimmy Watson, who allegedly helped McAfee carry out some of his pumping and dumping schemes.
The criminal action covers almost the same foundation as a civil action brought by the Securities and Exchange Commission at the time of his arrest last October.
“I’m not out and about for my win”
Prosecutors say McAfee has been involved in two types of illegal schemes. In one, he would buy an obscure cryptocurrency, talk about it on Twitter and then download it for a higher price. In other cases, he would agree to post a new cryptocurrency sale on Twitter in exchange for a share of the profits.
Buying and promoting cryptocurrencies is not necessarily illegal in itself. The problem, prosecutors say, is that McAfee tried to increase the effectiveness of its endorsements by falsely claiming that it had no financial interest in its recommendation. The government says this has made its actions a violation of federal fraud statutes.
For example, prosecutors say that around December 20, 2017, McAfee bought more than $ 100,000 from the obscure cryptocurrency Electroneum (ETN). The next day, he tweeted that he had obtained “more than one DM” telling him that Electroneum was “the holy grail of cryptocurrency”.
When someone asked McAfee if he invested in ETN, McAfee denied it.
“I don’t have any ETC,” he tweeted, according to the prosecution. “I am not betting on my profit. I am showing you the incredible value of supporting a currency that will change the world.”
Prosecutors say McAfee actually was pumping for your gain. The ETN price jumped 40% in the hours after McAfee tweeted about it. McAfee liquidated its shares, making a good profit. Since then, the value of ETN has fallen by almost 90%.
In another case, also in December 2017, the creator of a new cryptocurrency called SETHER promised to pay McAfee 30 percent of SETHER ICO’s earnings. McAfee should also obtain “a substantial percentage” of the newly created SETHER tokens. In return, McAfee agreed to tweet that the coin was “the first symbol to open the door to a new social marketing paradigm”, among other things.
On Twitter, someone asked if he was paid to promote tokens like SETHER.
“I don’t”, he answered. “I just search the dough [of] tokens to find the jewels and share them. “Although he said he had” advised them on cybersecurity “.
On the same day, McAfee wrote privately to the founder of SETHER: “For the next few weeks, get my name off your website,” he suggested. “I want to be able to leverage my Twitter with people assuming I have no relationship with you. Removing my name now will add at least a million dollars to your sale.”
The following month, while announcing an initial coin offer for a token called PODONE, McAfee was outraged by the accusations that he was being paid to promote cryptocurrencies:
Why does everyone assume that I get paid for everything I tell people to check ???????? Can’t I point out items of interest? Why the hell do I need money. Google me. And it is very rude to ask people what they do. How much do you earn in your job ??
– John McAfee (@officialmcafee) January 24, 2018
In total, federal prosecutors say McAfee has won more than $ 13 million from deceptive cryptocurrency schemes.
Prosecutors say McAfee knew he was breaking the law
Just a few weeks earlier, the Securities and Exchange Commission explicitly warned that celebrities may be breaking the law if they promote a cryptocurrency offer without revealing that they have a financial stake in it.
“Any celebrity or other individual who promotes a token or virtual currency that is a security must disclose the nature, scope and amount of compensation received in exchange for the promotion,” wrote the SEC. According to federal prosecutors, McAfee did the opposite. And the government argues that McAfee knew he was breaking the law. Prosecutors say McAfee participated in several direct message conversations discussing SEC rules.
In a speech on December 16, McAfee stated that he was working on a new cryptocurrency called McAfee Coin – as far as I can tell, this project never came to fruition.
“I’m actually trying to comply with the letter of the law,” said McAfee. He said he wanted McAfee’s currency to be “a legitimate entity that the SEC cannot enter in a year and say that Mr. McAfee is under arrest. This will happen with many tokens, I promise.”
On a December Tweet, McAfee’s wife said life imprisonment has “quickly deteriorated “McAfee’s 75-year-old body and bodylike “it virtually destroyed his health. He has lost almost 30 pounds now and has major problems internally.”