The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) on Monday announced parallel actions against cybersecurity entrepreneur and two-time U.S. presidential candidate John McAfee, 74, alleging he orchestrated a fraudulent cryptocurrency pump-and-dump scheme and evaded millions in taxes. McAfee was arrested in Spain and is pending extradition to the United States.
SEC Alleges $23M ICO Pumping Scheme
The SEC charged McAfee and his bodyguard, Jimmy Watson Jr., with fraudulently promoting at least seven initial coin offerings (ICOs) from November 2017 to February 2018. According to the agency, McAfee used his Twitter platform (then 784,000 followers) to recommend these ICOs without disclosing he was paid for each promotion. This constituted illegal 'touting' under federal securities laws. McAfee received over $11.6 million in bitcoin and ether, plus approximately $11.5 million in the promoted tokens themselves – totaling more than $23.1 million in secret compensation. The ICOs raised about $41 million in total.
The SEC further alleged that McAfee lied directly when asked if he was paid. After a blogger exposed his paid promotions in February 2018, rendering his tweets ineffective for further pumps, McAfee held a large stash of virtually worthless tokens. He then paid a third party to pump those tokens while he secretly sold his own holdings – a practice known as 'scalping.' Watson allegedly assisted in both schemes and received at least $316,000. The SEC seeks disgorgement, civil penalties, and a ban on McAfee serving as an officer or director of any public company or participating in digital asset securities offerings.
DOJ Indictment for Tax Evasion
The DOJ unsealed a June 15, 2020 indictment charging McAfee with tax evasion and willful failure to file tax returns from 2014 to 2018. Despite earning millions from cryptocurrency promotions, consulting, speaking engagements, and selling life story rights, McAfee allegedly did not file any returns. He attempted to evade taxes by directing income to bank and crypto exchange accounts held in nominees' names, and by concealing assets (real estate, a vehicle, a yacht) under others' identities.
McAfee had previously boasted about refusing to pay taxes. In February 2020, he tweeted: 'Tax evasion is misrepresentation of income. I have never done that. I merely refuse to pay.' He went into exile on a boat in 2019 after being charged with using cryptocurrencies in criminal acts. If convicted, he faces up to five years per tax evasion count and one year per failure-to-file count, plus supervised release, restitution, and fines. His arrest in Spain occurred in late September 2020, where he claimed to be visiting for a mud wrestling arena project.
Broader Implications
The case underscores regulators' escalating crackdown on celebrity-endorsed crypto schemes and tax noncompliance. McAfee's dismissive attitude toward the SEC – he once wrote, 'I am not Elon Musk – I’m John Fucking McAfee. Watch the difference' – failed to protect him from legal consequences. His extradition from Spain will determine whether he faces trial in the U.S. The SEC’s action also set a precedent for holding promoters accountable for undisclosed compensation in the crypto space.