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John McAfee charged over a pump-and-drum crypto promotion

March 5, 2021, 9:07 PM UTC

Cybersecurity software mogul John McAfee, in custody in Spain facing U.S. tax charges, was indicted for fraud and money laundering for his use of social media to promote cryptocurrencies.

McAfee and another man, Jimmy Gale Watson Jr., used McAfee’s Twitter account to push a variety of cryptocurrencies without disclosing that they were being paid for the promotion, earning more than $13 million, according to federal prosecutors in New York. Watson, who prosecutors said was the executive director of McAfee’s crypto team, was arrested Thursday night in Texas and is scheduled to appear before a federal magistrate judge on Friday.

McAfee, 75, was indicted last June on charges of failing to file tax returns for four years and concealing assets, including real estate and a yacht, in the name of others. He was arrested in Spain in October and is awaiting possible extradition. Prosecutors allege that McAfee earned millions of dollars through speaking engagements, consulting jobs, the promotion of cryptocurrencies and the sale of the rights to his life story for a documentary, without disclosing the income. The Securities and Exchange Commission sued McAfee on the day of his arrest, saying he recommended at least seven initial coin offerings to his Twitter followers in 2017 and 2018 without revealing that he earned more than $23 million to boost them.

The latest charges revolve around a practice called scalping, which prosecutors said is a form of a pump-and-dump scheme. McAfee, Watson and others allegedly bought “large quantities” of publicly traded cryptocurrencies before promoting them, then touted them without disclosing that they owned a substantial position. McAfee’s team then sold their positions after his tweets sparked short-term price increases.

From December 2017 to January 2018, McAfee and his team earned more than $2 million from these activities, prosecutors said, while the long-term value of the cryptocurrencies they promoted “declined substantially.”

Prosecutors said McAfee, Watson and others used the Twitter account to support initial coin offerings without disclosing that McAfeewas getting paid to promote them. McAfee and his team allegedly earned more than $11 million for touting the cryptocurrencies.