Audrey Strauss, United States attorney for the Southern District of New York, and William F. Sweeney Jr., deputy director in charge of the New York field office of the Federal Bureau of Investigation (“FBI”), announced today the unveiling of an indictment accusing JOHN DAVID MCAFEE, the founder of antivirus software company McAfee, and JIMMY GALE WATSON JR., who served as an executive advisor to the so-called cryptocurrency team of MCAFEE (the “McAfee Team”), with conspiracy to commit commodity and securities fraud, conspiracy to commit securities and tout fraud, wire fraud conspiracy and material wire fraud, and money laundering conspiracy offenses arising from two schemes relating to the fraudulent promotion to investors of cryptocurrencies qualified under federal commodity or securities law. WATSON, who was arrested last night in Texas, will appear later today before a magistrate federal judge in the North Texas District. The MCAFEE is currently being held in Spain on separate criminal charges filed by the Tax Division of the United States Department of Justice.
Manhattan US Attorney Audrey Strauss said: “As alleged, McAfee and Watson have operated a widely used social media platform and the enthusiasm of investors in the emerging cryptocurrency market to earn millions through to lies and deceit. The defendants allegedly used McAfee’s Twitter account to post messages to hundreds of thousands of its Twitter followers touting various cryptocurrencies through false and misleading statements to cover up their true personal motives. McAfee, Watson, and other members of McAfee’s cryptocurrency team have reportedly raised over $ 13 million from investors they fell victim to with their scam schemes. Investors should be wary of endorsements of investment opportunities through social media. ”
FBI Deputy Director William F. Sweeney Jr. said, “As alleged, McAfee and Watson have used social media to perpetrate an age-old pump and dump system that has grossed them nearly two million dollars. 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 for touting those titles on behalf of the ICO. When you engage in illegal activity, just finding new ways to do old tricks won’t produce different results. Investment fraud and money laundering schemes are punishable by strict penalties under federal law. “
According to allegations in unsealed indictment documents today in Manhattan Federal Court, including the indictment against JOHN DAVID MCAFEE and JIMMY GALE WATSON JR. and a criminal complaint previously filed against the MCAFEE:[1]
During the period from December 2017 or around October 2018, JOHN DAVID MCAFEE and JIMMY GALE WATSON JR., Along with other members of the McAfee team, carried out two fraudulent schemes relating to promotion to crypto investors -currencies eligible under federal law. in the form of commodities or securities.
The first draft involved a fraudulent practice called “scalping”, sometimes referred to as “pump and dump”. This scalping pattern usually consisted of the following. First, MCAFEE, WATSON and other members of the McAfee team bought large amounts of publicly traded cryptocurrency altcoins, referred to as commodities or securities, at inexpensive market prices, knowing at the argues that MCAFEE planned to endorse them publicly through its widely followed Twitter account (the “McAfee Twitter Account”). Second, following these purchases, MCAFEE posted false and misleading approval tweets via its official McAfee Twitter account recommending these altcoins to members of the investing public for investment purposes in order to artificially inflate (or “inflate”) their prices. market without revealing that MCAFEE had large amounts of promoted altcoins, even though MCAFEE had given false assurances that it would disclose this information in various tweets and public statements during the scalping program. Third, MCAFEE, WATSON and other members of the McAfee team then sold (or ‘dumped’) their respective investment positions in the altcoins promoted in the temporary but significant increases in short-term market prices that the misleading tweets of MCAFEE generally generated, often for significant benefits. Between or around December 2017 and around January 2018, MCAFEE, WATSON, and other members of the McAfee team collectively earned over $ 2 million in illicit profit from their altcoin scalping activities, while long-term value recommended altcoins purchased by investors has declined. noticeably a year after the promotional tweets. Between or around December 2017 and around October 2018, MCAFEE, WATSON, and other members of the McAfee team engaged in various efforts to liquidate digital asset proceeds from their US currency scalping business.
In the second diagram, MCAFEE, WATSON and other members of the McAfee team also used MCAFEE’s official McAfee Twitter account to publicly announce fundraising events known as “Initial Coin Offerings” (“ICO”) in which start-up companies (“ICO issuers”) were issuing and selling digital tokens that qualified as securities for the investing public, without disclosing and, in fact, hiding that the ICO issuers were compensating MCAFEE and his team for its promotional tweets with a substantial portion of funds raised from ICO investors. As the United States Securities and Exchange Commission publicly warned, and as MCAFEE and WATSON are well aware, federal securities laws required them to disclose any compensation paid by ICO issuers for touting offers of securities qualified as ICOs. Between or about December 20, 2017 or February 10, 2018, MCAFEE, WATSON, and the rest of the McAfee team collectively earned over $ 11 million in undisclosed compensation which they took steps to affirmatively hide. to ICO investors. In each case, MCAFEE and WATSON did not disclose to ICO investors that the ICO issuers were paying the McAfee team a substantial portion of the funds raised from ICO investors for their bragging efforts, knowing that they were required to disclose such federal title compensation. laws. Additionally, in several instances during this ICO bragging system, MCAFEE and WATSON have taken active steps to conceal their secret clearing agreements with ICO issuers from ICO investors, and MCAFEE has made false and misleading statements and omissions. to hide such transactions from ICO investors. Between or around December 2017 or around October 2018, MCAFEE, WATSON and other members of the McAfee team made various efforts to liquidate digital asset proceeds from their US dollar ICO promotion activities.
During the period from December 2017 or around October 2018, MCAFEE and WATSON instigated another member of the McAfee team to conduct banking transactions to launder the proceeds of the ICO fraudulent bragging scheme.
In separate parallel enforcement actions, the United States Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (“CFTC”) have filed civil charges against MCAFEE and WATSON.
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MCAFEE, 75, and WATSON, 40, are US citizens. Both are charged in an indictment of seven counts with one count of conspiracy to commit fraud on goods and securities, carrying a potential maximum penalty of five years in prison; one count of conspiracy to commit security interests and bragging about fraud, carrying a potential maximum penalty of five years in prison; two counts of conspiracy to commit wire fraud and two counts of substantial wire fraud, each carrying a maximum sentence of 20 years imprisonment; and one count of conspiracy to commit money laundering, carrying a potential maximum penalty of ten years in prison. In addition to potential prison sentences, each of these charges also carries potential financial penalties. The potential maximum prison sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentences to be imposed on defendants will be determined by the judge.
Ms Strauss praised the FBI’s work in investigating this case and thanked the SEC and CFTC, both of which have conducted separate parallel investigations, for their assistance.
This matter is being handled by that office’s Securities and Commodities Fraud Working Group. The deputy lawyers for the United States, Samson Enzer and Elizabeth Hanft, are in charge of the prosecutions.
The allegations contained in the prosecution documents in this case are only charges, and the defendants are presumed innocent until proven guilty.
[1] As the opening sentence indicates, the entire text of the complaint and the indictment and the description of the indictment documents presented here constitute only allegations, and each fact described must be treated as an allegation. .
