Mar 5, 2021 4:20 PM

John McAfee Is Indicted for Altcoin Pump-and-Dumps and ICO Schemes

The 75-year-old antivirus entrepreneur faces up to 80 years in prison if convicted.

On the evening of December 20, 2017, the controversial cybersecurity pioneer John McAfee tweeted that he would embark on something of an educational blitz. “Beginning tomorrow, I will each day talk about a unique altcoin,” McAfee wrote. “Most of the 2,000 coins are trash or scams. I've read every white paper. The few I'm connected to I will tell you. The rest I have no position in.” It’s that last bit that caught the attention of the Department of Justice.

On Friday the US Attorney’s Office of the Southern District of New York indicted McAfee and executive assistant Jimmy Watson on multiple charges that encompass two alleged cryptocurrency schemes. (McAfee was previously indicted in October for separate tax evasion charges.) According to court documents, McAfee and his associates raked in a combined $13 million between the two efforts, both of which relied on using McAfee’s popular Twitter account to push niche cryptocurrencies or promote initial coin offerings without disclosing that he stood to profit, either through investment gains or promotional fees.

“As alleged, McAfee and Watson exploited a widely used social media platform and enthusiasm among investors in the emerging cryptocurrency market to make millions through lies and deception,” said Manhattan US attorney Audrey Strauss in a press release. “The defendants allegedly used McAfee’s Twitter account to publish messages to hundreds of thousands of his Twitter followers touting various cryptocurrencies through false and misleading statements to conceal their true, self-interested motives.”

Pump You Up

The altcoin talks that McAfee promoted were one alleged leg of that deception. In mid-December 2017, he allegedly directed an associate to buy around $5,000 worth of tokens in XVG, also known as Verge. That same day on Twitter, McAfee described XVG—along with more established tokens like Monero and Zcash—as a coin that “cannot lose.” Two days later, when a Twitter user suggested McAfee had “pumped” XVG, artificially inflating its value in order to sell high, McAfee responded with indignation. “I own no XVG,” he wrote. “I live [sic] how you shallow folks cannot distinguish between someone who shamelessly speaks his mind—because it's true—and someone with an ulterior motive. You know absolutely nothing about me if you believe I have the time to waste spewing garbage.”

XVR spiked 500 percent in the four days after McAfee’s initial tweet. McAfee, prosecutors say, sold near the top, turning a tidy $30,000 profit.

That success appears to have inspired what McAfee would call his “Coin of the Week” series. The same day he announced his journey into “unique altcoins” on Twitter, McAfee allegedly instructed an associate to put $100,000 of bitcoin into Electroneum tokens. On December 21, 2017, he tweeted a glowing, bulleted report on ETN, including an assertion that he had “more than one DM calling Electroneum the holy grail of cryptocurrency.” (It’s quite a contrast to what McAfee had tweeted just one week earlier, on December 15: “I personally find nothing about Electroneum that I would like to talk about. Not that it's bad, just not special to me.”) He again claimed that he owned none.

Electoneum jumped 40 percent that day. McAfee’s associate cashed out at a profit, prosecutors say.

Court documents allege a lather, rinse, repeat of that basic scheme played out through January 28 of the following year. McAfee would instruct his associate to purchase “hundreds of thousands or even millions of tokens” in that week’s featured altcoin less than 10 days before featuring it. McAfee would extol the virtues of BURST, DGB, RDD, HMQ, TRX, FCT, DOGE, XLM, SYS, and RCN. His associate, prosectors say, would close the position soon after to profit from the usual bump. In all, they allegedly pocketed $2 million from the pump-and-dump scheme, including hundreds of thousands from Dogecoin alone.

According to an unsealed criminal complaint, around the time they began accumulating Dogecoin tokens, an unnamed co-conspirator Googled “regulatory laws trading cryptocurrency.” Several months later, in July, that same co-conspirator allegedly conducted searches for “bad actor definition” and “fraudster defined.”

ICO No

During roughly this same stretch of time, McAfee and his associates also used Twitter to promote seven initial coin offerings, a fundraising mechanism for new cryptocurrencies. The alleged impropriety is straightforward here as well; prosecutors say that McAfee and his “team members” were paid a combined $11 million in ethereum and bitcoin, along with a chunk of altcoins, to plug those ICOs on Twitter.

The first of these came on December 20, 2017, when McAfee told his Twitter followers that Sether, which had just launched, was "a world changing coin and a world changing concept." A follower asked him if he was paid to promote ICOs in that manner; McAfee replied that he was not. In truth, prosecutors say, he had exchanged direct messages in the preceding days in which he secured a payment for Team McAfee of 30 percent of the total funds raised in the ICO, along with a “substantial percentage” of the tokens that would be issued to the public. That deal alone, court documents say, resulted in a payout of $6 million in ethereum and bitcoin, plus ICO tokens that were worth millions of dollars at the time.

Similar arrangements over the following months allegedly brought in at least another $5 million for McAfee and his associates. The ICO indictment echoes charges that the SEC brought against McAfee in October of last year.

In this new indictment, McAfee and Watson face seven counts: conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, conspiracy to commit money laundering, and two counts each of conspiracy to commit wire fraud and substantive wire fraud. Watson was arrested Thursday night in Texas, officials said.

McAfee has been detained in Spain since last fall; his extradition remains pending. Friday's allegations are just the latest in a long string of legal issues for the antivirus entrepreneur. A 2012 WIRED feature detailed McAfee’s run-ins with authorities in Belize, who raided his home on suspicions of drug manufacturing and would later name him as a “person of interest” in the murder of a neighbor, Gregory Faull. McAfee hid out in Guatemala until a reporter inadvertently revealed his whereabouts in the metadata of a published photograph. He was arrested on immigration charges, denied asylum, and sent back to the United States.

In the years since, McAfee fashioned himself into a cryptocurrency guru, particularly over his eccentric and at times unhinged Twitter account. He infamously pledged in 2017 that he would “eat [his] dick on national television” if the value of one bitcoin did not hit $500,000 by July 2020. (It didn’t; he didn’t.) The 75-year-old now faces up to 80 years in prison from this round of charges alone, suggesting a life spent recently on the run may have finally hit the brakes.