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McAfee Charged with Fraudulent Promotion of Initial Coin Offering

mcafee vs icos

October 22, 2020 | 

JOHN K MWANIKI |  0 Comments| 

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The Securities and Exchange Commission (SEC) has charged John McAfee for fraudulently touting ICOs. The SEC released a statement claiming the tech mogul promoted ICO investments without disclosing he was getting paid for it. 

SEC claims McAfee promoted the coins to his 784,000 Twitter followers at the time. He also made misleading statements that he was investing in some of the projects.

McAfee's bodyguard, Jimmy Watson Jr, was also arrested at the same time. He had allegedly helped McAfee in negotiating the deals with ICO issuers. He also assisted in cashing out the proceeds from the digital currencies' payments. The role fetched him$360,000 in payments. 

The promotion by McAfee has led to investors holding assets that are now worthless. As a public figure, he generated a lot of interest from the users. They trusted him to buy the assets without having to research more.  

He was also still holding part of such assets. By encouraging the investors to purchase the coins, their value would rise. After this, he would offload his share of the assets. According to the regulator, the practice is called scalping. He creates a large position by promoting the asset on Twitter. Later on, selling the holdings with values higher. 

Charges Against McAfee

McAfee stands accused of making behind-the-deal scenes without disclosing to his followers he was getting paid to promote the crypto tokens. He would flaunt the users a coin so that they can purchase as an advertisement. Yet, he would present as an independent conclusion. He would then use his influence, and the follower picks up the virtual money

SEC believes McAfees's statement was important for investors considering investing. The suit is filed at the US District Court for the Southern District of New York. It charges McAfee and his bodyguard with violating the antifraud laws of the federal securities law. It also has a provision for violating the anti-touting rules. 

McAfee was involved with several cryptocurrencies. The first one was SETHER in 2017. He failed to disclose to the followers that he was to get 30 percent of the daily amount raised through the ICO. He was involved with the other 7 ICOs afterward. He promoted the digital coins in a series of more than 40 tweets. 

He, in the process, made millions. He received the money in the form of Bitcoin, Ethereum, and the other tokens.

The promotion was such that one user once inquired whether he got paid. He refuted, claiming he sifts through the mass of tokens then settle on the best. He even claimed he was only after improving people's lives. 

SEC states that he made more than $10 million from the ICO. He denied promoting on that specific tweet. He also appeared in music videos promoting these coins. One such tweet features him, rapping to the lyrics of "Pickin" ICOs

The suit seeks to compel McAfee for permanent injunctive relief and conduct-based injunctions. It also wants him to return allegedly ill-gotten gains and serve civil injunctions. The regulator also wants McAfee to forfeit serving as a public company officer and director. 

Other Notable Personalities Charged Before Over Fraudulent ICOs

John McAfee's case is not the first time a celebrity is charged with fraudulent ICOs. The ICOs understand the influence celebrities possess. They know most people like associating with them. They would buy famous people's endorsements. 

The trend has seen several celebrities engage in fraudulent ICO practices. Some of the past culprits include; 

1.    Steven Seagull 

Steven Seagull was one of the first to appear on the regulator's bad books. SEC accused the famous actor of involvement in the Bitcoiin2Gen. He failed to disclose he was receiving payments to promote the token. 

SEC states Seagull was paid $250000 in cash and 750,000 worth of the token to promote it on his social media pages. The digital currency was a hard-kill Ethereum-based project. 

Seagull agreed to pay $314000 in fines and penalties. The peer to peer payment project had even used him as a brand ambassador at some point. It would provide a wallet and a decentralized mining ecosystem. 

2.    Floyd Mayweather and DJ Khaled 

Professional boxer Floyd Mayweather and DJ Khaled have had to pay hefty fines over fraudulent ICOs. Mayweather promoted three ICOs; Centra, Hubii, and another one. DJ Khaled promoted Centra. 

The personalities made a lot of money in the process. The companies paid Mayweather $100000 and $20000 to promote the other two ICOs. 

DJ Khaled received $50,000. They never disclosed ever receiving such endorsements. They instead advertised these projects like independent views. 

The SEC later charged them where they incurred massive fines. Mayweather paid $614,775 in penalties, fines, and interest. DJ Khaled also paid $152,725. 

3.    TI

Like the other celebrities, Clifford Joseph Harris, known as TI, was charged for fraudulent ICO. SEC announced the rapper and actor was part of the 2017 FLik ICO.  He used his Twitter account to encourage followers to buy the token. He even lied that he was part-owner of the project. 

The token was a brainchild of the movie director, Ryan Felton. He had promised to bring "Netflix on blockchain." He never delivered on that promise. He instead started another project called SPARK. 

FLIK also promised lucrative promotional materials. It promised the redeemability of the token at $3.99 after three months. The users would then redeem token at $6.99 and $14.99 after 6 and 12 months, respectively. 

The rapper agreed to pay $75000 fines. He is also to sit out five years ways from any relatable digital assets sales. He even though never admitted to any wrongdoing. 

Bottom Line 

Celebrity advertisement is one of the most popular. The cryptocurrency market is fast learning to use celebrities to launch fraudulent ICOs. 

John McAfee is the latest to join several celebrities in promoting ICOs. 

Like the earlier offenders, John failed to disclose that he was paid to promote SETHER token. He touted them as an independent thinker, yet he had been paid. The promotion led to users buying the tokens. They then ended up with useless tokens as the virtual currency never picked up. 

SEC seeks full disclosure to investors by the token promotions. It is working to ensure everyone enforces. It is also working on a regulation roadmap to ensure safety in the crypto world. 

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