“Disobedience is the vehicle of progress”- John McAfee

The interesting turn of the event took place when the news of the death of John McAfee in a Barcelona prison cell was broadcast. The buzz was created as the news of his death came out just hours after a Spanish court agreed to extradite him to the US to face tax evasion charges.

In October 2020, McAfee was arrested in Spain while boarding a plane for Turkey. The US Justice Department levelled allegations of Tax Evasion against McAfee, stating that he escaped tax liability by having his income paid into bank accounts and cryptocurrency exchange accounts in the names of nominees. Thus, failing to pay the tax returns from 2014 to 2018

John McAfee, a tech entrepreneur, was born in Gloucestershire, England. He was born to an Englishwoman who met an American soldier stationed in the UK during World War II. He first came into the limelight when he founded his tech company and released McAfee VirusScan. McAfee remained wrapped in a blanket of controversies when he escaped the investigation of his neighbour in Belize and remained a ‘person of interest’. He also declared himself a Libertarian Party candidate in the 2016 and 2020 presidential elections. In 2019, he was detained in the Dominican Republic for allegedly bringing weapons into the country.

The US Securities and Exchange Commission (SEC) had accused John McAfee, along with his bodyguard-cum-executive advisor Jimmy Watson Jr., of promoting cryptocurrencies to McAfee’s Twitter following to inflate the prices. The so-called McAfee Team (Cryptocurrency Team), comprising John McAfee himself along with Jimmy Watson and others, executed two fraudulent schemes relating to the sale of ‘cryptocurrencies’ which are treated as commodities or securities under federal law. Cryptocurrencies are not issued by the government and neither they are legal tender. The exchange value of cryptocurrencies is based upon the trust within its community of users.

In relation to the charges framed against McAfee and his team the Manhattan U.S. Attorney Audrey Strauss said, “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.  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.  McAfee, Watson, and other members of McAfee’s cryptocurrency team allegedly raked in more than $13 million from investors they victimized with their fraudulent schemes.  Investors should be wary of social media endorsements of investment opportunities.”

FBI Assistant Director William F. Sweeney Jr. said, “As alleged, McAfee and Watson used social media to perpetrate an age-old pump-and-dump scheme that earned 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 to tout these securities on behalf of the ICO. When engaging in illegal activity, simply finding new ways to carry out old tricks won’t produce different results. Investment fraud and money laundering schemes carry a strict penalty under federal law.”

McAfee and his team executed two fraudulent schemes relating to the promotion to investors of cryptocurrencies. The first scheme involved the practice of ‘pump and dump’ and is often called ‘scalping’. In this scalping scheme, McAfee and his team bought large quantities of publicly-traded cryptocurrency altcoin at cheap market prices, Later, they published false and misleading tweets via McAfee’s verified Twitter account recommending these altcoins for investment to the public in order to artificially inflate or pump their market prices. Later, dumping these altcoins and he booked heavy profit using such deceptive tweets. Through this scalping scheme, McAfee, Watson Jr. and other team members made a profit of $2 million and the long-term value of altcoins recommended by McAfee declined substantially.

In the Initial Coin Offerings (ICOs), the businesses raise money from the investing public. In ICOs, the businesses issue offers or sell ICO coins or tokens to potential investors in exchange for consideration. The consideration received by the ICO issuers often comes in the form of Ethereum (ETH) or Bitcoin (BTC), etc, and it can also be in the form of fiat currency.

In the second scheme, McAfee and other team members used McAfee’s verified Twitter account to publicly tout the fundraising events i.e. Initial Coin Offerings (ICO) for the businesses that issued and sold digital tokens. Such ICO issuers paid money in return for such promotional tweets. The digital tokens are treated as ‘securities’ under federal law. As per the United States Securities and Exchange Commission (SEC), the federal securities laws require the promoters of digital tokens to the public, to disclose any monies paid by the ICO issuers for promoting such securities.

The McAfee team conducted a Twitter promotion of at least 7 ICOs. McAfee and team members concealed the fact that ICO issuers paid McAfee to promote and McAfee Team collectively earned $11 million for sponsoring these ICOs.

McAfee and his team carried out his scam while living in Lexington, Tennessee from December 2017 to October 2018. McAfee through his tweets, appearances on public conferences and YouTube and as a CEO of a publicly-traded cryptocurrency company, carried himself as an expert on cybersecurity and cryptocurrency. Jimmy Watson, working as a private security guard ended up being ‘Executive Advisor’ to the McAfee Team. McAfee and Team also made various attempts to liquidate digital assets which were proceeds of the ICO touting and pump and dump schemes.

The certain characteristics and uses of digital currencies qualify them as commodities under the Commodity Exchange Act, of 1936 and regulations thereunder by the Commodity Futures Trading Commission (CFTC) prohibit fraud or manipulation with any swap or contract of sale of any commodity in interstate commerce. Several of the cryptocurrency altcoins scalped by McAffee and the team qualified to be commodities under federal law and CFTC regulations.

Under certain circumstances, digital assets can also qualify as securities subject to the Securities Act of 1933, the Securities and Exchange Act, 1934 and regulations promulgated thereunder by the SEC. The ICO tokens, so promoted by McAfee and Team and offered to investors were qualified to be securities under federal law and SEC regulations.

During the period from in or about December 2017 through in or about October 2018, McAfee and Watson caused another McAfee Team member to engage in banking transactions to launder the proceeds of the fraudulent ICO touting scheme.  In separate parallel enforcement actions, the SEC and CFTC have filed civil charges against both.

The US Department of Justice has charged both McAfee and Jimmy Watson in a seven-count Indictment with one count of conspiracy to commit commodities and securities fraud, which carries a maximum potential sentence of five years in prison; one count of conspiracy to commit securities and touting fraud, which carries a maximum potential sentence of five years in prison; two counts of conspiracy to commit wire fraud and two counts of substantive wire fraud, each of which carries a maximum potential sentence of 20 years in prison; and one count of conspiracy to commit money laundering, which carries a maximum potential sentence of ten years in prison.  In addition to potential prison sentences, each of these charges also carries potential financial penalties.

McAfee while waiting for his extradition to the US to face the charges said, “I am hoping that the Spanish court will see the injustice of this,” adding “the United States wants to use me as an example.” Spain’s High Court agreed to extradite McAfee to the United States. McAfee, 75, awaiting extradition was found dead in his cell. “McAfee still had opportunities to appeal his conviction but could not stand more time in jail,” said McAfee’s lawyer, Javier Villalba. He further added, “This is the result of a cruel system that had no reason to keep this man in jail for so long”