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John McAfee arrested over cryptocurrency fraud

Erratic tech baron allegedly promoted initial coin offerings without disclosing he was being paid to do so

Technology baron and cyber security founder John McAfee has been arrested by Spanish police at the behest of the US government, and charged, along with his bodyguard Jimmy Watson Jr, for his role in an alleged cryptocurrency fraud scheme and tax evasion.

In separate indictments unsealed on 5 October 2020 by the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ), it was claimed that McAfee promoted multiple initial coin offerings (ICOs) on Twitter while pretending to be impartial, but failed to disclose that he was being paid more than $23m in “digital assets” to do so; failed to file tax returns over a four-year period; and attempted to evade tax liabilities by concealing assets, including real estate and a yacht, in the names of others.

“Potential investors in digital asset securities are entitled to know if promoters were compensated by the issuers of those securities,” said Kristina Littman, the SEC’s cyber unit chief.

“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,” she said.

The SEC’s complaint goes on to allege that McAfee made other false statements, including that he had invested in some of the ICOs and was advising some of the issuers.

Watson, meanwhile, supposedly aided in negotiating the promotional deals with the ICO issues and helped McAfee cash out the digital asset payments, for which he was allegedly paid $316,000. He is also said to have had his partner tweet interest in the ICO.

Bona fide investors, the SEC added, were left holding digital assets that have now become essentially worthless.

The pair also stand accused of engaging in a separate scheme to profit from a digital asset security by quietly accumulating a large position in McAfee’s accounts, touting the security on Twitter while intending to sell it, and then selling the holdings as the price rose.

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The charges against McAfee and Watson include violating anti-fraud provisions of the US’s federal security laws, while McAfee is charged with violating anti-touting provisions and Watson with aiding and abetting him. The Department of Justice’s charges relate to tax evasion.

The SEC is seeking permanent injunctive relief, conduct-based injunctions, the return of ill-gotten gains and civil penalties. It also hopes to disbar McAfee from serving as a public company officer or director. If convicted under the DoJ’s charges, he could also face a lengthy spell in prison.

McAfee founded the eponymous cyber security company in 1987 but resigned in 1994. Since then, he has founded several other business ventures, but none as successful as McAfee. He has attracted more attention in recent years for his increasingly erratic behaviour, lavish lifestyle, boasts of tax evasion, and allegations of other criminal activity.

He is now awaiting extradition to the US.

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