In March, software innovator John McAfee and his bodyguard, a decorated former-Navy Seal named Jimmy Gale Watson, Jr., pled Not Guilty to federal criminal charges in New York federal court.
The pair face charges of fraud, conspiracy, and money laundering for allegedly duping investors into buying cryptocurrency in a scheme that prosecutors claim netted them over $13 million in profits.
On June 24, 2021, McAfee was found dead in his prison cell in Barcelona, Spain, just hours after the Spanish government authorized his extradition to the U.S. The apparent cause of death was hanging.
According to his Spanish lawyer, McAfee still had opportunities to appeal his extradition but could not stand more time in jail.
In 2017, McAfee hired Watson to serve as his private security guard. Watson was quickly promoted to “executive advisor” of McAfee’s cryptocurrency team.
According to the indictment, McAfee and Watson engaged in a “pump and dump” scheme. The pair loaded up on inexpensive cryptocurrencies before McAfee publicly endorsed them from his popular Twitter account. After inflating the value of the cryptocurrencies, McAfee and Watson sold them at an increased price, earning $2 million in the process.
McAfee’s Twitter account, @officialmcafee, had over 784,000 followers in February of 2018. In March 2021, that number was up to 1 million.
The indictment also claims that McAfee and Watson used the account to promote cryptocurrency offerings without telling investors they were being paid for those promotions. Federal law requires people who promote cryptocurrency offerings to disclose any compensation they receive in return.
Prosecutors claim the pair earned $11 million for endorsing those cryptocurrencies and took steps to conceal those payments from investors.
McAfee and Watson were also targets of a civil enforcement action filed by the U.S. Commodity Futures Trading Commission, and another enforcement action brought by the U.S. Securities and Exchange Commission (S.E.C.) which claims they brought in $23.1 million in undisclosed earnings for promoting seven cryptocurrency offerings on Twitter.
Before his death, McAfee was well-known for his unwillingness to pay taxes, claiming that his “real crime [was] in speaking out against the insanity within our government.” McAfee believed cryptocurrencies were “our last hope for financial independence” and called the charges against him “absolutely ridiculous.”
The charges against McAfee represent one of the first and most high-profile cases in which the government has accused someone of tax evasion based on their use of cryptocurrency.
Watson’s attorneys similarly describe the criminal indictments as “blunt instruments, not precise scalpels” and stated that “Criminal courts are not the right place to debate whether cutting edge technologies like cryptocurrencies are securities, commodities, or something else.”
McAfee believed that the charges against him had a political motive, and feared that if he was sent to the U.S. he would spend the rest of his life in prison.
McAfee and Watson were some of the first people to face criminal charges for their role in promoting cryptocurrencies, and the cases raise interesting questions about the nature of cryptocurrency investments and how they should be regulated.
According to the Howey Test, which was first set forth by the Supreme Court in the case of SEC v. W.J. Howey, a financial instrument is an investment contract, and therefore a security, if there is an investment:
However, in June of 2019, Jay Clayton, the Chair of the U.S. Securities and Exchange Commission, said that Bitcoin, the most popular form of cryptocurrency, is not a security because it replaces sovereign currencies like the yen, dollar, or euro. But he held off on stating that other cryptocurrencies are not securities, leaving room for the prosecution of people who promote investment in the new technology.
As the popularity of cryptocurrencies grows and new investment technologies emerge, prosecutors and regulators will be forced to grapple with how these investments are classified and whether individuals can be investigated and charged with financial crimes for their role in promoting them.
If you are under investigation or have been charged with a crime because of your investment in a cryptocurrency, you need an experienced criminal defense attorney on your side.
Philadelphia federal criminal defense attorney Hope Lefeber began her career as an enforcement attorney with the S.E.C., where she learned first-hand how the government investigates and prosecutes federal white-collar criminal cases. Today, she uses that experience to defend people who are accused in federal court of committing crimes.
Ms. Lefeber represents people in and around Philadelphia who have been charged with financial crimes in federal court. She has represented high-profile clients including executives at Fortune 500 Companies, as well as doctors, lawyers, professors, people involved in securities transactions, educators and students, medical professionals, and people from all walks of life who have been investigated or charged with financial crimes in federal court.
Ms. Lefeber has earned a reputation as a fierce advocate for her clients who meticulously prepares every case she takes on. She is highly respected by her colleagues in the federal bar, federal judges, and her clients.
If you are under investigation or have been charged in federal court, Hope Lefeber should be your first call. Contact Ms. Lefeber today to schedule a confidential consultation to discuss your case.
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