Remember when John McAfee claimed Bitfi’s wallet is unhackable and then it got hacked twice? Now, anti-virus software creator John McAfee has been charged with fraud and money-laundering related to two cryptocurrency schemes, the US Justice Department stated on Friday.
According to the authorities, they used the ‘pump-and-dump scheme’ on Twitter to exploit McAfee’s large following and concealed payments that McAfee received from start-up businesses to promote initial coin offerings.
It is important to understand how the pump-and-dump scheme works; it boosts the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements.
The perpetrators of this scheme are usually already well known in the company and have an established position in the company’s stock. This practice is illegal based on securities law and it can also lead to heavy fines.
So what happened with the schemes exactly?
McAfee, Watson, and other team members first bought huge quantities of publicly-traded cryptocurrency ‘altcoins’ at inexperienced market prices with the intention of publicly endorsing them through his widely followed Twitter account.
The SEC allegations:
My team evaluated every promotion based on management, business plans and potential. No one could have foreseen the altcoin market crash.
We were paid in the same coins that crashed. The SEC allegations are overblown.
— John McAfee (@officialmcafee) March 6, 2021
Then they proceeded to publish false and misleading endorsement tweets recommending those altcoins to members of the investing public in order to artificially inflate their market prices without disclosing that McAfee owned large quantities of the promoted altcoins.
Lastly, they sold their respective investment positions in the promoted altcoins into the temporary but significant short-term market price increases. From around December 2017 till January 2018, they collectively earned more than $2 million in illicit profits from their altcoin scalping activities.
In the second scheme, they used the Twitter account to publicly tout fundraising events called ‘initial coin offerings’ in which start-up businesses issued and sold digital tokens qualifying as securities to the investing public.
McAfee was then reportedly arrested at an airport in Barcelona while boarding a flight to Istanbul using a British passport. There were also other related civil charges filed by the Commodity Futures Trading Commission concerning the alleged pump-and-dump scheme.
Manhattan US Attorney Audrey Strauss said in a statement:
“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.”