The U.S. Securities and Exchange Commission (SEC) has officially charged John Mcafee, a well-known businessman and computer programmer, for allegedly misleading investors through the promotion of initial coin offerings (ICOs). The charges, announced on October 5, 2020, also include McAfee’s bodyguard, Jimmy Watson Jr., for his involvement in the purported scheme.
According to the SEC complaint, McAfee leveraged his significant Twitter following to promote various ICOs, creating the false impression of unbiased endorsement. In reality, the SEC alleges that McAfee was secretly paid over $23 million in digital assets to promote these investments. Despite being questioned by investors about his compensation, McAfee purportedly denied receiving any payments from the ICO issuers, further misleading his followers. The SEC also claims McAfee made false statements about personally investing in and advising certain ICOs.
The SEC details that Jimmy Watson Jr. played a crucial role in facilitating this scheme. Watson allegedly negotiated promotion deals with ICO issuers, assisted McAfee in converting the digital asset payments into cash, and even used his then-spouse to tweet about one of the ICOs being promoted by McAfee. For his participation, Watson allegedly received at least $316,000. The SEC contends that while McAfee and Watson profited handsomely, investors were left holding digital assets that have since become practically worthless.
Adding to the severity of the charges, the SEC also alleges a separate scheme involving McAfee and Watson. This scheme reportedly involved secretly accumulating a large position in a particular digital asset security within McAfee’s accounts. McAfee then allegedly promoted this security on Twitter with the intention of selling his holdings as the price artificially inflated due to his promotional activities. The SEC states that McAfee subsequently sold his holdings for substantial profit.
Kristina Littman, Cyber Unit Chief at the SEC, emphasized the importance of transparency for investors in digital asset securities. “Potential investors in digital asset securities are entitled to know if promoters were compensated by the issuers of those securities,” Littman stated. “McAfee, assisted by Watson, allegedly leveraged his fame to deceptively tout numerous digital asset securities to his followers without informing investors of his role as a paid promoter.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges both McAfee and Watson with violating antifraud provisions of federal securities laws. Specifically, McAfee is charged with violating anti-touting provisions, while Watson is charged with aiding and abetting McAfee’s violations. The SEC is seeking permanent injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains, and civil penalties. Furthermore, the SEC is seeking to bar McAfee from serving as an officer or director of any public company.
In a parallel announcement, the Tax Division of the Department of Justice also revealed criminal charges brought against John McAfee, underscoring the severity of the legal challenges McAfee is facing.
The SEC investigation was a collaborative effort, involving personnel from various divisions and also acknowledges the assistance of the Internal Revenue Service Criminal Investigation Division.
The SEC’s Office of Investor Education and Advocacy urges investors to exercise caution when considering celebrity endorsements and to conduct thorough independent research before making any investment decisions. This case serves as a stark reminder of the risks associated with ICO investments and the importance of due diligence in the digital asset market.
