Eccentric Antivirus Mogul John McAfee Accused of Making Millions in Illegal Crypto Schemes

Anthony Kwan/Bloomberg via Getty
Anthony Kwan/Bloomberg via Getty

Eccentric antivirus millionaire John McAfee is facing federal charges again—this time, over a pair of alleged cryptocurrency schemes that allegedly raked in more than $13 million for himself and his accused band of scammers, including his ex-security guard turned CEO.

Manhattan federal prosecutors announced Friday that McAfee, 75, was being held in Spain on separate criminal charges by the Department of Justice’s tax division, while authorities cuffed his alleged accomplice, 40-year-old Jimmy Gale Watson Jr., in Texas.

It’s the latest problem for the eponymous founder of the antivirus software company. In October, McAfee was indicted for federal tax evasion and willfully failing to file tax returns from 2014 to 2018, and accused of hiding assets including his yacht and real property in the names of other people. At the time, prosecutors in Tennessee claimed he earned millions from promoting cryptocurrencies and even selling his life story for a documentary.

Steven Seagal, a Missing Private Eye, and an Alleged Crypto Fraud

The new indictment states McAfee, Watson, and other members of McAfee’s “so-called cryptocurrency team” engaged in “scalping,” or a “pump and dump” scheme with the help of McAfee’s Twitter handle @officialmcafee. They face charges including commodities and securities fraud conspiracy, wire fraud conspiracy, wire fraud, and securities and touting fraud conspiracy.

According to the feds, McAfee and his team purchased scores of publicly traded altcoins—an alternative to bitcoin—for low market prices, then published false and misleading tweets via McAfee’s Twitter to “artificially inflate” their market price. McAfee and his supposed accomplices then sold their investments collectively for more than $2 million. The fraudsters allegedly scalped at least 12 publicly traded altcoins, which qualify under federal law as commodities or securities.

While McAfee and Watson gained “illicit profits,” the indictment adds, the long-term value of the altcoins purchased by investors plummeted “as of a year after the promotional tweets.” Prosecutors say McAfee falsely promised he’d disclose whether he had a big stake in altcoin in his tweets and public statements during the scheme.

In a second scheme, McAfee allegedly championed “initial coin offerings,” without disclosing that the startups behind the fundraising drives were paying McAfee and his team for the promotional tweets with a big chunk of the proceeds raised from investors.

The bizarro globe-trotting computer programmer—once suspected in the murder of a neighbor in Belize but never charged—began ramping up his Twitter profile in the years before the two schemes. Many of McAfee’s 784,000 followers were cryptocurrency investors, the indictment claims.

In his Twitter bio, McAfee described himself thus: “Iconoclast. Lover of women, adventure and mystery. Founder of McAfee Anti-virus.” His location is pegged as: “Wherever I am.”

While the indictment doesn’t identify the altcoin offerings, McAfee tweeted about multiple ICOs for emerging startups, including a health-care platform called Docademic and the UK-based women-only cab Pink Taxi. “Possibilities are endless when Free Health Care is a reality. Docademic ICO ends on Sunday, not without monumental success! One of the best ICOs I’ve seen,” he tweeted in April 2018.

“For the women in crypto: The ICO is the first safety coin that helps protect women in male dominated societies. One if [sic] the most promising ICOs since Docademic or Bezop,” McAfee posted in June 2018. The tweet included a video of himself and a woman claiming to be a Pink Taxi investor.

The indictment also names an alleged co-conspirator only revealed as “McAfee Team Member-1,” whom McAfee allegedly directed to buy large quantities of a specific altcoin which he would then endorse on Twitter and sell to reap a profit.

Several investors who took the bait lived in the Southern District of New York, where Team Member-1 tried opening an account with a digital asset exchange so McAfee could liquidate his proceeds of the alleged crypto conspiracy.

But in January 2018, the cryptocurrency exchange declined Team Member-1’s application, prompting the man to fire off an email identifying himself as an “employee of John McAfee” and threatening to sue over the rejection.

Prosecutors say McAfee, Watson, and their helpers also orchestrated a second scheme, using McAfee’s Twitter to promote “initial coin offerings,” or a fundraising method startups use that’s similar to an initial public offering—except investors receive new digital “tokens,” often in exchange for established cryptocurrency like Bitcoin.

McAfee’s team should have known federal securities laws required them to disclose any compensation from ICO issuers, the indictment says. Indeed, in November 2017, the U.S. Securities and Exchange Commission specifically warned: “Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.”

The alleged scammers collected more than $11 million in undisclosed compensation, which they made sure to hide from investors.

McAfee lived in Lexington, Tennessee, during the alleged scalping and ICO schemes, which occurred from December 2017 to October 2018.

Watson began working as a private security guard for McAfee in November 2017 and moved into the tech pioneer’s Tennessee home. McAfee would soon promote Watson from guard to “executive advisor” and later to CEO of the McAfee team before he left in October 2018, according to the indictment.

In January 2018, McAfee opened an account using his own name at a cryptocurrency exchange in California with assistance from Watson and Watson’s then-wife.

McAfee and Watson, according to court papers, had Watson’s former spouse use McAfee’s California exchange account to liquidate proceeds of the ICO touting scheme into millions of dollars of U.S. currency, before wiring more than a million dollars through a New York financial institution and routing it to a bank account registered to McAfee in Tennessee.

The feds say in April 2018, McAfee and Watson directed the wife to submit an application online to open an account at a New York exchange so the men could liquidate their ill-gotten cryptocurrency.

If convicted on all counts, McAfee and Watson face 60 years behind bars.

“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 U.S. Attorney Audrey Strauss in a statement. “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.”

“Investors should be wary of social media endorsements of investment opportunities,” Strauss concluded.

Read more at The Daily Beast.

Get our top stories in your inbox every day. Sign up now!

Daily Beast Membership: Beast Inside goes deeper on the stories that matter to you. Learn more.