McAfee was detained in Spain after being arrested on separate tax evasion charges filed by the tax division of the Ministry of Justice. Ministry officials said his extradition to the United States was pending. McAfee and Watson could not be reached immediately for comment on Friday.
Prosecutors allege that McAfee and his associates exploited the popularity of his Twitter account to perform what is known as a “pump and dump” system.
McAfee and Watson initially bought large amounts of cryptocurrency at low prices, according to the indictment. Then they promoted those same digital tokens on Twitter, with the aim of inflating their prices, using bogus and misleading endorsements – including deceptively telling potential investors that they would disclose if they owned the. cryptocurrencies they recommended. But those were bogus assurances, prosecutors say – next came the “dump”.
After the cryptocurrency prices skyrocket, McAfee and his associates sold their holdings, often at a significant profit, according to the indictment, leaving investors with assets that had significantly declined in long-term value. Prosecutors allege that McAfee and Watson engaged in this “scalping” scheme from about December 2017 to about January 2018.
Prosecutors also charged McAfee and Watson with crimes related to a second alleged scheme involving fundraising events called “initial coin offers,” in which start-ups issue and sell digital tokens to investors. The Securities and Exchange Commission has warned that people who promote ICOs must disclose any compensation they receive for approving digital tokens. In alleged violation of securities laws, McAfee and Watson approved ICOs while hiding from investors that they were in fact paid for promotional tweets.
Between about December 2017 and February 2018, McAfee and his associates earned around $ 11 million in undisclosed payments from ICO issuers that they withheld from the investing public, according to the indictment. Prosecutors have included images of McAfee’s tweets in court documents as evidence of his false statements. In a tweet dated December 20, 2017, McAfee responds to another user who asks if he is paid to promote an ICO. “I don’t,” says McAfee. But prosecutors allege he was in fact receiving compensation for strengthening the ICO through his Twitter account.
In total, McAfee and Watson were charged with seven counts, each carrying a maximum of 10 or 20 years in prison, in addition to possible financial penalties.
McAfee and Watson also face separate civil charges brought by the SEC and the Commodity Futures Trading Commission.
The indictment comes amid an extraordinary surge in cryptocurrency prices. Bitcoin, the largest cryptocurrency by market value, topped $ 50,000 for the first time last month before falling. Digital tokens sparked a trading frenzy in late 2017 as bitcoin and other cryptocurrencies gained public attention and further penetrated the mainstream of finance. Bitcoin has jumped over 60% this year.