Enlarge /. John McAfee on his yacht off the coast of Cuba in 2019.
Adalberto ROQUE / AFP / Getty
Federal prosecutors have charged well-known cybersecurity eccentric John McAfee with securities and cable fraud for misleading investors at the height of the recent cryptocurrency boom. In late 2017 and early 2018, McAfee urged its hundreds of thousands of Twitter followers to invest in a range of obscure cryptocurrencies. Prosecutors say he failed to disclose his own financial stake in these tokens – and in some cases lied directly about it.
McAfee has been in custody in Spain since his arrest at an airport in Barcelona last October. He was about to be extradited to the United States for tax evasion; The self-described libertarian has not filed a tax return for several years. Now he will face additional security and wire fraud charges alongside bodyguard Jimmy Watson, who allegedly helped McAfee run some of its pump-and-dump programs.
The criminal complaint covers much the same ground as a civil lawsuit filed by the Securities and Exchange Commission at the time of his arrest last October.
"I don't pump for my profit"
According to prosecutors, McAfee conducted two types of illegal programs. In one case, he bought an obscure cryptocurrency, pronounced it on Twitter, and then dumped it at a higher price. In other cases, he would agree to overshadow a new cryptocurrency sale on Twitter to cut the proceeds.
Buying and promoting cryptocurrencies is not necessarily illegal on its own. The problem, according to prosecutors, is that McAfee tried to make his endorsements more effective by falsely claiming that he had no financial share in his recommendation. The government says his actions were in violation of federal fraud laws.
For example, prosecutors say that around December 20, 2017, McAfee purchased more than $ 100,000 of the obscure Cryptocurrency Electroneum (ETN). The next day he tweeted that he had got "more than one DM" and told him that Electroneum was "the holy grail of cryptocurrency".
When someone asked McAfee if they had invested in ETN themselves, McAfee denied it.
"I don't own an ETC," he tweeted, according to the prosecution. "I don't pump for my profit. I'll show you the incredible value of supporting a coin that will change the world."
Prosecutors say McAfee actually pumped for profit. The price of ETN rose 40 percent in the hours after McAfee tweeted about it. McAfee liquidated its shares and made a nice profit. Since then, the value of ETN has fallen nearly 90 percent.
In another case, also in December 2017, the creator of a new cryptocurrency called SETHER promised to pay McAfee 30 percent of the proceeds from the SETHER ICO. McAfee should also receive "a significant percentage" of the newly created SETHER tokens. In return, McAfee agreed to tweet that the coin was, among other things, "the first sign that opened the door to a new paradigm in social marketing".
On Twitter, someone asked him if he was paid to promote tokens like SETHER.
"I don't," he replied. "I just search the bulk of the tokens to find the gems and share them." Though he claimed he "advised her on cybersecurity issues."
On the same day, McAfee wrote privately to the founder of SETHER, "Take my name off your website for the next few weeks," he suggested. "I want to be able to use my Twitter with people who believe I have no relationship with you. If you remove my name now, your sales will increase by at least a million dollars."
When McAfee announced an initial coin offer for a token called PODONE the next month, he was outraged by the allegations that he was being paid to promote cryptocurrencies:
Why does everyone assume that I get paid for everything I tell people to check out ???????? Can't I damn well point out interesting things? Why the fuck do i need money? Google me. And it's damn rude to ask people what they're doing. How much do you earn from your job?
– John McAfee (@officialmcafee) January 24, 2018
Overall, prosecutors say McAfee earned more than $ 13 million from misleading cryptocurrency advertising.
Prosecutors say McAfee knows he's breaking the law
Just weeks earlier, the Securities and Exchange Commission had warned that celebrities may be breaking the law if they advertise a cryptocurrency offering without disclosing that they have a financial interest in it.
"Any celebrity or other person who advertises a virtual token or coin that is a security must disclose the type, scope and amount of compensation they will receive in exchange for the promotion," the SEC wrote. According to federal prosecutors, McAfee did the opposite. And the government argues that McAfee knew he was breaking the law. According to the prosecutor, McAfee participated in several direct message conversations that discussed SEC rules.
In a December 16 speech, McAfee claimed he was working on a new cryptocurrency called McAfee Coin – as far as I can tell, that project never came to fruition
"I'm actually trying to stick to the letter of the law," said McAfee. He said he wanted the McAfee coin to be "a legitimate entity that the SEC can't reach in a year and says, Mr. McAfee, that you are under arrest. That will happen to a lot of tokens, I promise you."
In a December tweet, McAfee's wife said life in prison "rapidly deteriorating "McAfee's 75-year-old body and has "practically ruined his health. He has now lost nearly 30 pounds and has major problems internally."