The former bodyguard to embattled John McAfee has pleaded not guilty in a $13 million digital currency fraud case. Jimmy Gale Watson Jr. faces a seven-count indictment including conspiracy to commit securities fraud and substantive wire fraud.
McAfee hired Watson in 2017 to be his private bodyguard. The decorated former Navy Seal rose up the ranks, becoming one of the executives behind the McAfee Team, a digital currency team founded by the antivirus software innovator that purported to give investors tips and advice on the best projects to invest in.
However, as CoinGeek reported earlier this month, the team was using social media for pump and dump schemes. The U.S. Justice Department unsealed an indictment against the pair for two schemes in which they were accused of promoting junk projects and ICO projects without disclosing they were receiving payments to do this.
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.
The CFTC thanks and acknowledges the assistance of the U.S.
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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)].
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.
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Mr. Watson then parked his vehicle near the street, and walked across the lot towards a pay phone, constantly scanning the lot. At this point, the officers stopped Mr. Watson for investigation.
Mr. Watson was advised of the circumstances surrounding the stop, and he volunteered to cooperate. He signed a consent to search form, and allowed his van to be searched.
The officers found a bag containing, among other things, eighty-eight grams of a white powdery substance, later determined to be cocaine.
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From approximately on or about December 20, 2017 through on or about February 10, 2018, MCAFEE, WATSON, and other McAfee Team members collectively earned more than $11 million in undisclosed compensation that they took steps to affirmatively hide from ICO investors. In each instance, MCAFEE and WATSON failed to disclose to ICO investors that the ICO Issuers were paying the McAfee Team a substantial portion of the funds raised from ICO investors for their touting efforts, despite knowing that they were required to disclose such compensation under federal securities laws.
Furthermore, in several instances during this ICO touting scheme, MCAFEE and WATSON took active steps to conceal their secret compensation arrangements with ICO issuers from ICO investors, and MCAFEE made false and misleading statements and omissions to hide such deals from ICO investors.
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Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging JOHN DAVID MCAFEE, the founder of the McAfee antivirus software company, and JIMMY GALE WATSON JR., who served as an executive adviser of MCAFEE’s so-called cryptocurrency team (the “McAfee Team”), with conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, wire fraud conspiracy and substantive wire fraud, and money laundering conspiracy offenses stemming from two schemes relating to the fraudulent promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities.
“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,” U.S. Attorney Audrey Strauss said in a statement describing crimes in 2017 and 2018.
“The defendants allegedly used McAfee’s Twitter account to publish messages to hundreds of thousands of his Twitter followers touting various cryptocurrencies through false and misleading statements to conceal their true, self-interested motives,” she added.
In October, McAfee was charged in Tennessee with evading taxes after failing to report income made from promoting cryptocurrencies while he did consulting work, made speaking engagements and sold the rights to his life story for a documentary.
McAfee developed early internet security software and has been sought by authorities in the U.S.
McAfee, Watson, and other members of McAfee’s cryptocurrency team allegedly raked in more than $13 million from investors they victimized with their fraudulent schemes. Investors should be wary of social media endorsements of investment opportunities.”
FBI Assistant Director William F.
Sweeney Jr. said: “As alleged, McAfee and Watson used social media to perpetrate an age-old pump-and-dump scheme that earned them nearly two million dollars. Additionally, they allegedly used the same social media platform to promote the sale of digital tokens on behalf of ICO issuers without disclosing to investors the compensation they were receiving to tout these securities on behalf of the ICO. When engaging in illegal activity, simply finding new ways to carry out old tricks won’t produce different results.
ICOs and that he was advising certain issuers. The complaint alleges that Watson assisted McAfee by negotiating the promotion deals with the ICO issuers, helping McAfee cash out the digital asset payments for the promotions, and, for one of the ICOs McAfee was promoting, having his then-spouse tweet interest in the ICO. Watson was allegedly paid at least $316,000 for his role.
According to the complaint, while McAfee and Watson profited, investors were left holding digital assets that are now essentially worthless.
McAfee and Watson also allegedly engaged in a separate scheme to profit from a digital asset security by secretly accumulating a large position in McAfee’s accounts, touting that security on Twitter while intending to sell it, and then selling McAfee’s holdings as the price rose.
The SEC’s complaint, filed in the U.S.
Caballero. One week later the same informant notified the same New Orleans police officer that Mr. Caballero was going to his apartment in New Orleans to pick up some narcotics and transport them into Jefferson Parish.
A surveillance was set up and Mr.
Caballero was observed leaving his Orleans Parish residence, placing a tote bag into his car trunk, and driving off. The officers stopped Mr. Caballero, discovered a large quantity of methaqualone in his vehicle, and arrested him.
The Jefferson Parish authorities were then notified, and a search warrant for Mr. Caballero’s Jefferson Parish residence was obtained.
A large quantity of methaqualone was discovered. Mr. Caballero was charged in Orleans Parish with possession with intent to distribute methaqualone.
He subsequently pled guilty and was sentenced to five years at hard labor.
Third, MCAFEE, WATSON, and other McAfee Team members then sold (or “dumped”) their respective investment positions in the promoted altcoins into the temporary but significant short-term market price increases that MCAFEE’s deceptive tweets typically generated, often for significant profits. From in or about December 2017 through in or about January 2018, MCAFEE, WATSON, and other McAfee Team members collectively earned more than $2 million in illicit profits from their altcoin scalping activities while the long-term value of the recommended altcoins purchased by investors declined substantially as of a year after the promotional tweets.
From in or about December 2017 through in or about October 2018, MCAFEE, WATSON, and other McAfee Team members engaged in various efforts to liquidate the digital asset proceeds of their scalping activities into United States currency.
SEC Charges John McAfee, Jimmy Watson, Jr with Fraudulently Touting ICOs
On October 6, 2020, the Securities and Exchange Commission (the “SEC”) charged businessman and computer programmer, John McAfee, for promoting investments in initial coin offerings (ICOs) to his Twitter followers without disclosing that he was paid to do so. McAfee’s bodyguard, Jimmy Watson, Jr., was also charged for his role in the alleged scheme.
According to the SEC’s complaint, McAfee promoted multiple ICOs on Twitter, allegedly pretending to be impartial and independent even though he was paid more than $23 million in digital assets for the promotions.
When certain investors asked whether he was paid to promote the ICOs, McAfee allegedly denied receiving any compensation from the issuers.