(HedgeCo.Net) The Commodity Futures Trading Commission has filed a complaint in the U.S. District Court for the Southern District of New York charging businessman and computer programmer John McAfee, previously of Tennessee, and his former employee Jimmy Gale Watson, previously of California, for engaging in a manipulative and deceptive digital asset “pump-and-dump” scheme.
According to the complaint, the defendants secretly accumulated positions in digital assets, deceptively promoted the digital assets through social media as valuable long-term investments, then sold their holdings as prices rose sharply following McAfee’s deceptive endorsements, resulting in profits in excess of $2 million. The scheme involved numerous digital assets, including verge (XVG), dogecoin (DOGE), and reddcoin (RDD). This enforcement action is the first brought by the CFTC for a manipulative scheme involving digital assets.
“Manipulative and fraudulent schemes, like that alleged in this case, undermine the integrity and development of digital assets and cheat innocent people out of their hard-earned money,” said Acting Director of Enforcement Vincent McGonagle. “Financial innovation is constantly breaking new ground, and the CFTC’s enforcement efforts must keep up. We will always act to hold fraudsters and manipulators accountable for misconduct.”
Related Criminal and Civil Actions
On March 5, 2021, the U.S. Attorney’s Office for the Southern District of New York announced the indictment of McAfee and Watson on charges of conspiracy to commit commodities and securities fraud, wire fraud, wire fraud conspiracy, conspiracy to commit securities touting fraud, and money laundering. Both individuals are also defendants in a civil enforcement action brought by the Securities and Exchange Commission. Both cases were filed in the U.S. District Court for the Southern District of New York. [See United States v. McAfee et al., No. 21-cr-138 (S.D.N.Y. March 2, 2021) and Securities and Exchange Commission v. McAfee et al., No. 20-cv-08281 (S.D.N.Y. Oct. 5, 2020)].
Case Background
According to the CFTC’s complaint, the defendants strategically selected digital assets suitable for their scheme. As is typical of pump-and-dump schemes, they secretly accumulated a position in a digital asset through bitcoin trading in anticipation of price spikes following McAfee’s misleading public endorsements on social media. They “pumped” in the form of touting the asset in order to increase demand, while deceptively concealing the previously accumulated position and the intent to promptly sell the position. The defendants then “dumped” the digital asset by selling it into the inflated demand as price levels rose in response to their deceptive touting.
In its continuing litigation, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
