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John McAfee Meet Agent Smith

Agent Smith in the Matrix described humans as a “virus.  A disease, a cancer of this planet. You are a plague, and we are the cure.”[1]  While not alleging all human beings are a virus, the U.S. government views John McAfee, the famed developer of anti-virus software, as a virus that has infected the American capital formation process. 

The U.S. Securities and Exchange Commission (“SEC”) recently filed suit against  John McAfee for allegedly promoting investments in initial coin offerings (“ICOs”). The SEC claims McAfee promoted the ICOs on Twitter while not disclosing that he was paid to do so. McAfee allegedly said he was impartial and that he was not receiving compensation by the ICO issuers. According to the SEC, McAfee was paid more than $23 million in digital assets for his endorsements and promotions of these ICOs.[2]  The ICOs McAfee promoted raised at least approximately $41 million.

The SEC alleges McAfee falsely claimed to be an investor or technical advisor to several ICOs he recommended to potential investors.  He also purportedly vetted the companies and claimed the companies benefitted from his technical expertise.  The SEC claims McAfee stated publicly that he was willing to invest his own money in the companies.  The SEC alleges that after a blogger exposed McAfee’s paid promotions and he could no longer generate interest in ICOs with tweets, McAfee who was holding a large number of worthless securities from the ICOs, encouraged investors to purchase the securities without disclosing that he was simultaneously trying to sell his own holdings.  The SEC claims McAfee paid a third-party promoter to hype the securities.  Finally, the SEC alleges McAfee engaged in a practice known as “scalping” when he accumulated large amount of a digital asset security and touted it on Twitter without disclosing his plan to sell the digital asset security.[3] 

The SEC’s claims McAfee violated the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions, return of ill-gotten gains, and civil penalties. The SEC also seeks to bar McAfee from serving as an officer or director of a public company. The Tax Division of the Department of Justice also announced criminal charges against McAfee related to these ICOs. According to unsealed indictment, McAfee committed tax evasion and willfully failed to file tax returns from 2014 to 2018. The indictment alleges McAfee received considerable income from his promotion of the ICOs as well as other sources during these years and failed to declare it for tax purposes. McAfee also allegedly attempted to evade the IRS by concealing assets from them, including real property and a yacht, under the names of others. A conviction under these charges carries a maximum of five years in prison on each count of tax evasion and a maximum sentence of one year in prison on each count of willful failure to file a tax return.

[1] The Matrix (1999).

[2] McAfee was paid bitcoin (BTC) and ether (ETH) worth more than $11.6 million, plus an additional $11.5 million worth of promoted tokens, as undisclosed compensation for his promotions of seven ICOs.

[3] Scalping enables a promoter to sell their securities quickly and at a profit by means of market interest they deceptively generated in violation of federal securities laws.

[4] See, e.g., Down for the Count - Floyd Mayweather Backed ICO Founder Pleads Guilty to Securities Fraud (June 23, 2020).

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 310

About this Author

Richard Levin Polsinelli Fintech Attorney

Richard Levin is the Chair of Polsinelli’s Chambers rated FinTech and Regulation Practice.  He brings his experience as a senior legal and compliance officer on Wall Street and in London to bear in advising clients on corporate, securities and regulatory issues. A problem-solver by nature, his practice focuses on helping financial services and technology (FinTech) clients identify and address regulatory issues as they build their businesses.

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