John McAfee arrested in Spain on ICO promotion charges

On Monday U.S. authorities revealed serious charges against John McAfee. The U.S. Department of Justice unsealed an indictment charging John David McAfee with tax evasion and willful failure to file tax returns. The June 15, 2020 indictment was unsealed following McAfee’s arrest in Spain. The DOJ says his extradition to the U.S. is pending.

The indictment alleges that McAfee earned millions in income from promoting cryptocurrencies, consulting work, speaking engagements, and selling the rights to his life story for a documentary. Despite a multi-million dollar income, the indictment alleges that from 2014 to 2018, McAfee failed to file tax returns.

According to the indictment, 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 IRS by concealing assets, including real property, a vehicle, and a yacht, in the names of others.

If convicted, McAfee faces a maximum sentence of five years in prison on each count of tax evasion and a maximum sentence of one year in prison on each count of failure to file a tax return.

The SEC alleges ICO violations

Also on Monday, the U.S. Securities and Exchange Commission sued McAfee for allegedly violating various U.S. securities laws. The SEC said it has “charged McAfee with promoting investments in initial coin offerings (ICOs) to his Twitter followers without disclosing that he was paid to do so. McAfee’s bodyguard, Jimmy Watson, Jr., was also charged for his role in the alleged scheme.”

The SEC alleges that “McAfee promoted multiple ICOs on Twitter, allegedly pretending to be impartial and independent even though he was paid more than $23 million in digital assets for the promotions.”

The complaint alleges that Watson assisted McAfee by negotiating the promotion deals with the ICO issuers, helping McAfee cash out the digital asset payments for the promotions, and, for one of the ICOs McAfee was promoting, having his then-spouse tweet interest in the ICO. Watson was allegedly paid at least $316,000 for his role. According to the complaint, while McAfee and Watson profited, investors were left holding digital assets that are now essentially worthless.

Lurid details

The complaint includes lurid details characteristic of McAfee’s flamboyant lifestyle. The SEC wrote that “McAfee’s extravagant posts (such as tweeting predictions about BTC price increases and promising to “eat my d**k on national television” if such predictions did not pan out) and interviews about his BTC predictions generated an enormous amount of publicity, especially among the digital asset community. From June 2017—just before McAfee’s first BTC price prediction—to December 2017, McAfee went from roughly 62,000 followers to more than 500,000 on Twitter.”

The SEC notes that McAfee’s “$1,000,000 BTC price prediction garnered more than 12,000 “Likes” and 8,000 “Retweets.” As McAfee gained fame in the digital asset community, ICO issuers began contacting him through Twitter direct messages (DMs), and later through at least one dedicated email address (first tweeted out by McAfee and later managed by Watson at McAfee’s direction), to ask McAfee to promote their upcoming digital asset offerings. Years later, McAfee admitted that his statements regarding his predicted price of BTC were merely a ruse intended to onboard new users.”

The SEC alleges that “Beginning in November 2017, McAfee (and later Watson) privately told ICO issuers that McAfee would promote their offerings and that they could list McAfee as an adviser if they gave McAfee a percentage of the digital assets being offered and/or payments in BTC. McAfee typically interspersed promotional tweets with warnings about other digital assets that he was not promoting or otherwise discussing. For example, on December 22, 2017, McAfee tweeted that “Yes, there are 1,500+ coins now. And yes, most are jokes or outright scams. But among those coins are . . . proven winners.”

The undisclosed payments

The tables below show the alleged compensation that McAfee received and the approximate number of tweets he made about each ICO. McAfee did not disclose these payments.The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges McAfee and Watson with violating antifraud provisions of the federal securities laws, McAfee with violating the anti-touting provisions, and Watson with aiding and abetting McAfee’s violations. The complaint seeks permanent injunctive relief, conduct-based injunctions, the return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar McAfee from serving as a public company officer and director.

McAfee and Brave New Coin

In 2019 McAfee appeared on Brave New Coin’s Crypto Conversation podcast. Asked if he was currently being pursued by U.S. authorities, McAfee said, “Well, I know that the FBI is after me. The FBI was involved in my indictment on the 22nd of January of this year. And the CIA, unquestionably the CIA. And this is on behalf of the Internal Revenue Service and the SEC which are my archenemies.”

McAfee claimed that at the time of the podcast, he was talking from inside a Faraday cage. “Nothing can get in or out of this room except the internet connection, which goes across a very complex series of virtual private networks,” said McAfee. “A Faraday Cage is a room, like I’m in now, where metallic material is used to prevent signals from coming in or going out. And the reason for that is you never know what has been hacked. It’s impossible in my situation to have a phone, we would be located almost immediately. So we carry no electronic gear outside the room. What’s in the room, even if it has been hacked, both hardware and software cannot communicate with whoever hacked it, nor can it communicate with the spyware, a central server, or anything else.”

It’s not known why McAfee was in Spain, where he exposed himself to arrest and subsequent extradition.

Photo Credit: Cage Skidmore