Anti-virus software mogul John McAfee has been indicted on fraud and money laundering charges in New York, adding to his already significant legal woes.
Mr McAfee, 75, was arrested for tax evasion in Spain last October and is awaiting extradition to the United States.
Now he and an associate, Jimmy Gale Watson Jr, have been charged over two alleged schemes to use Mr Mcafee’s Twitter following to defraud cryptocurrency investors.
“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,” said Audrey Strauss, the US Attorney for Manhattan, after the indictment was unsealed today.
“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 $US13 million ($17 million) from investors they victimised with their fraudulent schemes.
“Investors should be wary of social media endorsements of investment opportunities.”
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The pair face charges of conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, conspiracy to commit wire fraud, and money laundering.
“McAfee and Watson used social media to perpetrate an age-old pump-and-dump scheme that earned them nearly two million dollars,” said FBI Assistant Director William Sweeney Jr.
“Additionally, they allegedly used the same social media platform to promote the sale of digital tokens on behalf of ICO issuers without disclosing to investors the compensation they were receiving to tout these securities on behalf of the ICO.
“When engaging in illegal activity, simply finding new ways to carry out old tricks won’t produce different results. Investment fraud and money laundering schemes carry a strict penalty under federal law.”
The first scheme allegedly involved a fraudulent practice called scalping. Prosecutors say Mr McAfee, Mr Watson and other members of the team bought large quantities of publicly traded cryptocurrency altcoins at cheap market prices, with the advance knowledge that Mr McAfee planned to publicly endorse them via his Twitter account.
After the purchases, Mr McAfee allegedly published false and misleading tweets recommending the altcoins to members of the public, the aim being to artificially inflate their market prices without disclosing that he himself owned a large quantity.
“McAfee had given false assurances that he would disclose such information in various tweets and public statements during the scalping scheme,” prosecutors say.
The defendants then sold their investment positions in the altcoins into the “temporary but significant short term market price increases” that Mr McAfee’s tweets generated, earning significant profits.
In the second alleged scheme, the McAfee team used his Twitter account to publicly tout fundraising events called ‘initial coin offerings’ (ICOs), in which start-up businesses issued and sold digital tokens to the public.
Prosecutors say Mr McAfee concealed the fact that the businesses were compensating him for his promotion of the events with “a substantial portion” of the funds raised.
“From approximately on or about December 20, 2017 through on or about February 10, 2018, McAfee, Watson and other team members collectively earned more than $11 million in undisclosed compensation they took steps to affirmatively hide from investors.”
The United States Securities and Exchange Commission and Commodity Futures Trading Commission have filed separate civil charges against Mr McAfee and Mr Watson.
Last October, the US Department of Justice unsealed another indictment alleging Mr McAfee had hidden several assets in an effort to evade taxes.
Prosecutors said he earned millions in income from promoting cryptocurrencies, consulting work, speaking engagements and selling the rights to his life story for a documentary.
“From 2014-2018, McAfee allegedly failed to file tax returns, despite receiving considerable income from these sources,” the DOJ said.
“McAfee allegedly evaded his tax liability by directing his income to be paid into bank accounts and cryptocurrency exchange accounts in the names of nominees. The indictment further alleges McAfee attempted to evade the Internal Revenue Service by concealing assets, including real property, a vehicle and a yacht in the names of others.”
The suite of charges Mr McAfee is facing could see him imprisoned for the rest of his life.