Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 1 of 55
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`RICHARD BEST
`REGIONAL DIRECTOR
`A. Kristina Littman
`John O. Enright
`Jorge G. Tenreiro
`David H. Tutor
`Jon A. Daniels
`Attorneys for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
`New York Regional Office
`Brookfield Place
`200 Vesey Street, Suite 400
`New York, New York 10281-1022
`(212) 336-9145 (Tenreiro)
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`Email: TenreiroJ@sec.gov
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`SECURITIES AND EXCHANGE
`COMMISSION,
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`JOHN DAVID MCAFEE and
`JIMMY GALE WATSON, JR.,
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`Plaintiff,
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`-against-
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`Defendants.
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`COMPLAINT
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`20 Civ. 8281
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`ECF CASE
`JURY TRIAL REQUESTED
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`Plaintiff Securities and Exchange Commission (“SEC” or “Commission”), for its Complaint
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`against Defendants John David McAfee (“McAfee”) and Jimmy Gale Watson, Jr. (“Watson”)
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`(collectively, “Defendants”), alleges as follows:
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`SUMMARY
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`1.
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`McAfee is a businessman and computer programmer with hundreds of thousands of
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`Twitter followers. From at least November 2017 through February 2018, McAfee leveraged his fame
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`to make more than $23.1 million U.S. Dollars (“USD”) in undisclosed compensation by
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`recommending at least seven “initial coin offerings” or ICOs to his Twitter followers. The ICOs at
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 2 of 55
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`issue involved the offer and sale of digital asset securities and McAfee’s recommendations were
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`materially false and misleading for several reasons.
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`2.
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`First, McAfee did not disclose that he was being paid to promote the ICOs by the
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`issuers (the companies selling the securities in the ICOs). Promoting a security without disclosing
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`that you are being paid to do so is unlawful “touting” and violates the federal securities laws. The
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`ICOs McAfee touted raised at least approximately $41 million and McAfee made approximately
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`$23.2 million in secret compensation for his touts. When directly asked if he was being paid for
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`these promotions, McAfee lied to investors by falsely denying he was being paid by the issuers.
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`3.
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`Second, McAfee falsely claimed to be an investor and/or a technical advisor when he
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`recommended several ICOs, creating the impression that he had vetted these companies, that they
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`were benefitting from his technical expertise, and that he was willing to invest his own money in the
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`ventures. In reality, McAfee’s tweets were paid promotions disguised as impartial investment advice.
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`4.
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`Third, after a blogger exposed McAfee’s paid promotions and he could no longer
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`generate interest in ICOs with tweets, McAfee was still holding a large number of virtually worthless
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`securities from the ICOs he had previously touted. To cash out, McAfee encouraged investors to
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`purchase the securities sold in certain of the ICOs without disclosing that he was simultaneously
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`trying to sell his own holdings and had paid another third-party promoter to tout the securities.
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`5.
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`Finally, McAfee engaged in a practice known as “scalping” as to at least one digital
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`asset security, by accumulating large amounts of the digital asset security and touting it on Twitter
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`without disclosing his intent to sell it. Scalping generally allows promoters to sell their securities
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`holdings quickly and profitably through market interest that they deceptively generate, and violates
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`the federal securities laws.
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`6.
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`Defendant Watson was McAfee’s bodyguard; he also substantially assisted McAfee’s
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`touting and scalping schemes. Among other things, Watson negotiated the deals with ICO issuers
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`2
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 3 of 55
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`seeking promotions, helped McAfee monetize the proceeds of his promotions, and directed his
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`then-wife to tweet fake interest in an ICO that McAfee was promoting at the behest of the issuer.
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`7.
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`McAfee was paid bitcoin (BTC) and ether (ETH) worth more than $11.6 million,
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`plus an additional $11.5 million worth of promoted tokens, as undisclosed compensation for his
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`promotions of seven ICOs. McAfee paid Watson at least $316,000 for his role.
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`VIOLATIONS
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`8.
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`By virtue of the foregoing conduct and as alleged further herein:
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`a.
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`Defendant McAfee violated Sections 17(a) and 17(b) of the Securities Act of
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`1933 (“Securities Act”) [15 U.S.C. § 77q(a)-(b)], and Section 10(b) of the Securities Exchange
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`Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)], and Rule 10b-5(a)-(c) thereunder [17
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`C.F.R. § 240.10b-5(a)-(c)].
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`b.
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`Defendant Watson violated Sections 17(a)(1) and (3) of the Securities Act
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`and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder; and aided and
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`abetted McAfee’s violations of Sections 17(a) and 17(b) of the Securities Act and Section
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`10(b) of the Exchange Act and Rule 10b-5(a)-(c) thereunder, in violation of Section 15(b) of
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`the Securities Act [15 U.S.C. § 77o(b)] and 20(e) of the Exchange Act [15 U.S.C. § 78t(e)].
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`9.
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`Unless Defendants are restrained and enjoined, they will engage in the acts, practices,
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`transactions, and courses of business set forth in this Complaint or in acts, practices, transactions,
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`and courses of business of similar type and object.
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`NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
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`10.
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`The SEC brings this action pursuant to the authority conferred upon it by Sections
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`20(b) and 20(d) of the Securities Act [15 U.S.C. §§ 77t(b) and 77t(d)] and Section 21(d) of the
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`Exchange Act [15 U.S.C. § 78u(d)].
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`11.
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`The SEC seeks a final judgment: (a) permanently enjoining Defendants from
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`violating the federal securities laws and rules this Complaint alleges they have violated; (b) ordering
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`Defendants to disgorge all ill-gotten gains they received as a result of the violations alleged herein
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`and to pay prejudgment interest thereon, pursuant to Section 21(d)(5) of the Exchange Act [15
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`U.S.C. § 78u(d)(5)]; (c) ordering Defendants to pay civil money penalties pursuant to Section 20(d)
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`of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C.
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`§ 78u(d)(3)]; (d) permanently prohibiting McAfee from serving as an officer or director of any
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`company that has a class of securities registered under Section 12 of the Exchange Act [15 U.S.C.
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`§ 78l] or that is required to file reports under Section 15(d) of the Exchange Act [15 U.S.C.
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`§ 78o(d)], pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]; (e) permanently
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`prohibiting Defendants from participating, directly or indirectly, in the issuance, purchase, offer, or
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`sale of any digital asset security; and (f) ordering any other and further relief the Court may deem
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`appropriate or necessary for the benefit of investors.
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`JURISDICTION AND VENUE
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`12.
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`This Court has jurisdiction over this action pursuant to Section 22(a) of the
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`Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
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`13.
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`Defendants, directly and indirectly, have made use of the means or instrumentalities
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`of interstate commerce or of the mails in connection with the transactions, acts, practices, and
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`courses of business alleged herein.
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`14.
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`Venue lies in this District under Section 22(a) of the Securities Act [15 U.S.C.
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`§ 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Certain of the acts, practices,
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`transactions, and courses of business alleged occurred in this District. At least one of Defendants’
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`victims resides in this District, and Defendants converted into USD some digital assets obtained
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`from the ICOs using a service with its principal place of business in Manhattan.
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 5 of 55
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`DEFENDANTS
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`15. McAfee, age 74, previously a resident of Tennessee, currently resides in an unknown
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`location. McAfee previously served as the Chairman and CEO of MGT Capital Investments, Inc., a
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`publicly traded company, from November 2016 through 2017, and developed the popular anti-virus
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`software that still bears his name. McAfee tweets from the verified1 Twitter account
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`@officialmcafee, which had approximately 784,000 followers as of February 17, 2018.
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`16. Watson, age 39, resides in California. Watson began providing personal security for
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`McAfee in late 2017 and worked with McAfee to promote various ICOs during the relevant period.
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`RELATED ENTITIES
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`17. McAfee and Watson’s schemes involved ICO-1, ICO-2, ICO-3, ICO-4, ICO-5,
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`ICO-6, and ICO-7 (collectively, the “Touted ICOs”), offers and sales of digital asset securities, and
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`Token-8, which were offered and sold by the following issuers:
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`a. Issuer-1 is an unincorporated entity with its principal place of business in Bucharest,
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`Romania. From December 2017 to January 2018, Issuer-1 raised funds in an ICO
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`(ICO-1) for a token (Token-1), purportedly to construct the “first intelligence social
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`marketing platform” powered by smart contracts.
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`b. Issuer-2 is a U.K. company with its principal place of business in Lagos, Nigeria.
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`From December 2017 to January 2018, Issuer-2 raised funds in an ICO (ICO-2) for
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`a token (Token-2), purportedly to create a system to manage e-commerce businesses.
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`c. Issuer-3 is a Belizean company with its principal place of business in Las Vegas,
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`Nevada. In early 2018, Issuer-3 raised funds in an ICO (ICO-3) for a token (Token-
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`3), purportedly to create a program to connect contractors directly to consumers.
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`1 According to Twitter, a “verified account” is “an account of public interest” that is “authentic.” See
`https://help.twitter.com/en/managing-your-account/about-twitter-verified-accounts.
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`5
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`d. Issuer-4 is a Georgia limited liability company with its principal place of business in
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`Atlanta. From January to February 2018, Issuer-4 raised funds in an ICO (ICO-4) for
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`a token (Token-4), purportedly to create a slate of horror films that it would deliver
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`to customers using blockchain technology.
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`e. Issuer-5 is a Delaware corporation with its principal place of business in San
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`Francisco, California. In January 2018, Issuer-5 raised funds in an ICO (ICO-5) for a
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`token (Token-5), purportedly to create a background music control application.
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`f. Issuer-6 is a Florida limited liability company with its principal place of business in
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`Miami. From January to February 2018, Issuer-6 raised funds in an ICO (ICO-6) for
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`a token (Token-6), purportedly to fund the creation of an application that would
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`permit businesses to share human capital resources.
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`g. Issuer-7 is a Virgin Islands limited company with its principal place of business in
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`Moscow, Russia. From December 2017 to January 2018, Issuer-7 raised funds in an
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`ICO (ICO-7) for a token (Token-7), purportedly to create an application that would
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`permit individuals to challenge each other to “dares” for compensation.
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`h. Issuer-8 is a U.K. private limited company with its principal place of business in
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`Maidstone, United Kingdom. From September 2017 to October 2017, Issuer-8
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`raised funds in an ICO (ICO-8) for a token (Token-8), purportedly to fund the
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`creation of a digital asset wallet and cryptocurrency for mobile payments.
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`BACKGROUND ON DIGITAL ASSETS AND ICOs
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`18.
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`The term “digital asset” generally refers to an asset that is issued and transferred
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`using distributed ledger or blockchain technology, including so-called “cryptocurrencies,” “coins,”
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`and “tokens.” Generally, after being issued, digital assets may be “listed” on online digital asset
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`trading platforms where they can be traded for other digital assets or fiat currency such as USD.
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`19.
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`“Issuers” have offered and sold digital assets in fundraising events, called “initial coin
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`offerings” or “ICOs,” in exchange for consideration, often other digital assets. The digital assets
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`offered and sold in ICOs may or may not be transferable upon delivery to investors.
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`20.
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`ICOs are typically announced and promoted through public online channels. The
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`documents soliciting the public to acquire digital assets in a particular offering are usually in the
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`form of a “white paper,” i.e., marketing materials describing the project and the terms of the ICO.
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`To participate, investors may transfer funds to a unique digital address set up by the issuer, and the
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`issuer may deliver digital assets to the ICO participant’s unique digital address on a distributed ledger
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`or blockchain. This process may be partially automated through the use of a “smart contract.”2
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`21.
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`Issuers may launch digital assets in ICOs that appreciate in value in the hands of
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`investors. Issuers have also raised millions of dollars in fraudulent ICOs.
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`22.
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`On July 25, 2017, the SEC issued the “DAO Report of Investigation,” where it
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`noted that digital assets sold in ICOs may be securities subject to the federal securities laws.3
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`23.
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`On November 1, 2017, the SEC’s Division of Enforcement and Office of
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`Compliance Inspections and Examinations issued the “SEC Statement Urging Caution Around
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`Celebrity Backed ICOs” (“Celebrity ICO Statement”), which noted that, in accordance with the anti-
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`touting provisions of the federal securities laws, “[a]ny celebrity or other individual who promotes a
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`virtual token or coin that is a security must disclose the nature, scope, and amount of compensation
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`received in exchange for the promotion.”4
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`2 Blockchains or distributed ledgers can record what are called “smart contracts,” which essentially
`are computer programs designed to execute the terms of a contract when certain triggering
`conditions are met.
`3 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The
`DAO, Exchange Act Rel. No. 81207 (July 25, 2017).
`4 The Celebrity ICO Statement is available at: https://www.sec.gov/news/public-statement-
`statement-potentially-unlawful-promotion-icos.
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 8 of 55
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`I.
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`BACKGROUND
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`FACTS
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`24.
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`During the course of 2017, the trading price of one bitcoin (BTC) rose from
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`approximately $1,000 to $20,000 USD on certain digital asset trading platforms.
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`25.
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`Against this backdrop, on July 17, 2017, McAfee predicted on his official Twitter
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`account that the price of BTC would reach $500,000 by the end of 2020. On November 29, 2017,
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`also on Twitter, McAfee raised his predicted price of BTC to $1 million USD per BTC by the end of
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`2020, purportedly according to a “model.”
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`26. McAfee’s extravagant posts (such as tweeting predictions about BTC price increases
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`and promising to “eat my d**k on national television” if such predictions did not pan out) and
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`interviews about his BTC predictions generated an enormous amount of publicity, especially among
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`the digital asset community. From June 2017—just before McAfee’s first BTC price prediction—to
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`December 2017, McAfee went from roughly 62,000 followers to more than 500,000 on Twitter. His
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`$1,000,000 BTC price prediction garnered more than 12,000 “Likes” and 8,000 “Retweets.”
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`27.
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`As McAfee gained fame in the digital asset community, ICO issuers began contacting
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`him through Twitter direct messages (DMs), and later through at least one dedicated email address
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`(first tweeted out by McAfee and later managed by Watson at McAfee’s direction), to ask McAfee to
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`promote their upcoming digital asset offerings.
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`28.
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`Years later, McAfee admitted that his statements regarding his predicted price of
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`BTC were merely a “ruse” intended to “onboard new users.”
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`II.
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`THE ICO TOUTING SCHEME
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`29.
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`Beginning in at least November 2017, McAfee (and later Watson) privately told ICO
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`issuers that McAfee would promote their offerings and that they could list McAfee as an adviser if
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`they gave McAfee a percentage of the digital assets being offered and/or payments in BTC.
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`30. McAfee typically interspersed promotional tweets with warnings about other digital
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`assets that he was not promoting or otherwise discussing. For example, on December 22, 2017,
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`McAfee tweeted that “Yes, there are 1,500+ coins now. And yes, most are jokes or outright scams.
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`But among those coins are . . . proven winners.”
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`31.
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`In a December 28, 2017 interview, conducted and posted by a website targeted at the
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`digital asset community, and available on YouTube (the “December 2017 Interview”), McAfee
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`similarly warned ICO investors—in the context of distinguishing his own ICO recommendations—
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`that “you need to be very, very careful because there are so many scams, so many people that are
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`trying to steal [from] you that it’s a dangerous thing.”
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`32.
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`By contrast, McAfee would typically refer to the ICOs he was promoting as
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`investments from which investors could profit. For example, in the December 2017 Interview,
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`McAfee stated that “if you want to get in at the ground floor, meaning you will get it cheaper—in
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`other words, no one will get in cheaper than you because you’re buying it at the offering price; it can
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`only go up—then start looking at ICOs, initial coin offerings.”
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`33.
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`After the success of his initial ICO promotions, McAfee began demanding an up-
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`front payment in BTC in addition to a percentage of the digital assets offered in the ICOs, and, later,
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`a percentage of the total funds raised from investors in the offerings themselves, arguing that the
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`supposed success of certain offerings was due to his involvement.
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`34.
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`Because his own compensation was tied to the fundraising success of the ICOs he
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`was promoting, McAfee frequently urged investors to buy the touted tokens quickly and hold them
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`for the long term. For example, in response to questions about the nature of his ICO holdings in a
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`January 10, 2018 interview (the “January 2018 Interview”), McAfee responded, “If I truly believe
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`that they’re the coins of the future, wouldn’t it make sense to hold on to them for a couple
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`years? What madman would take a 100 percent gain over taking 10,000 times that?”
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 10 of 55
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`35.
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`Tables 1-3 set forth the compensation that McAfee received with respect to, and the
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`approximate number of tweets he made about, each Touted ICO. McAfee did not disclose any of
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`these payments to investors in connection with his promotional tweets for the Touted ICOs at the
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`time he was making the touting statements and the ICOs were ongoing.
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`USD Value Upon
`Receipt
`$6,107,570
`$3,116,256
`$558,403
`$57,997
`$428,495
`$110,130
`$669,944
`$11,048,795
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`Value Upon Receipt
`$619,465
`$24,633
`$644,098
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`First Payment
`12/20/2017
`1/2/2018
`1/8/2018
`1/9/2018
`1/16/2018
`1/19/2018
`1/30/2018
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`Table 1: McAfee ETH Payments for the Touted ICOs
`Total ETH
`Total #
`Total ETH
`Raised in
`of Tweets
`Paid to McAfee
`ICO
`ICO
`23,741 ETH 5,792 ETH
`11
`ICO-1
`10,144 ETH 2,953 ETH
`3
`ICO-2
`830 ETH
`449 ETH
`3 (1 deleted)
`ICO-3
`125 ETH
`45 ETH
`1 (deleted)
`ICO-4
`2,027 ETH
`412 ETH
`5
`ICO-5
`547 ETH
`110 ETH
`3
`ICO-6
`2,655 ETH
`728 ETH
`14
`ICO-7
`
`
`Total:
`Table 2: McAfee BTC Payments for the Touted ICOs
`ICO
`First Payment
`Total BTC Paid to McAfee
`ICO-1
`12/21/2017
`43 BTC
`ICO-3
`12/12/2017
`1.445 BTC
`Total:
`
`
`Table 3: McAfee Token Payments for the Touted ICOs
`Approximate Value in USD
`ICO
`Number of Tokens ICO Price per Token in USD
`$4,929,731
`ICO-1
`2,003,956
`$2.46
`$6,527,272
`ICO-2
`14,505,050
`$0.45
`$288
`ICO-3
`1,500
`$0.192
`$53,400
`ICO-7
`1,780,000
`$0.03
`$11,510,691
`Total:
`
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`36. McAfee and Watson ultimately transferred the BTC and ETH that McAfee received
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`in connection with this scheme to digital asset wallet services and digital asset trading platform
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`accounts in McAfee’s and Watson’s names and in the names of other individuals in McAfee’s
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`employ, which accounts McAfee and Watson directly or indirectly controlled.
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`10
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`37.
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`For example, McAfee and Watson transferred more than $1 million USD in digital
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`assets to a digital asset trading platform located in this District, where the digital assets were
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`converted to USD by Watson’s then-wife at McAfee’s and Watson’s direction. Watson’s then-wife
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`then sent the money to bank accounts controlled directly or indirectly by McAfee and Watson.
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`38.
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`From these transfers, Watson received approximately $316,000 in payment for his
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`participation in this scheme.
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`39.
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`On February 8, 2018, a blogger accused McAfee, in a lengthy, public post purporting
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`to contain irrefutable evidence of its accusations, of receiving undisclosed compensation for touting
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`ICOs and suggested that readers contact the SEC. As a result, a correspondent for one of the
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`Touted ICOs asked Watson to help the issuing company formulate a response.
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`40.
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`In response, on February 11, 2018, McAfee disclosed that he was being paid for
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`some of his promotions of ICOs, though even in that post he continued to make materially
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`misleading statements about the nature and extent of his involvement with the ICOs.
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`41.
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`Until February 11, 2018, McAfee had never disclosed that he was being paid for his
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`promotion of multiple ICOs.
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`42.
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`Even after February 11, 2018, McAfee made additional, materially misleading
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`statements about certain ICOs he had been promoting.
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`43. McAfee and Watson were located in the United States when they made many of the
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`promotional tweets for the Touted ICOs.
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`44.
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`Investors in the United States could and did buy tokens in the Touted ICOs.
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`A. McAfee Unlawfully Promotes the Touted ICOs and Misleads Investors About
`His Involvement with the ICOs
`
`45.
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`From at least November 2017 through February 2018, McAfee touted the seven
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`Touted ICOs through at least forty tweets and replies, some of which are set forth below.
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`11
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`46.
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`As he admitted during the January 2018 Interview, McAfee was aware that his tweets
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`had a significant impact on the prices of the Touted ICOs and that the true nature of his
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`relationship to the issuer was of critical importance to investors.
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`47.
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`In that interview, McAfee misleadingly highlighted another recent promotion as an
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`example of him supposedly being honest with the public, stating: “[I]f you look at that tweet today, I
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`said oh yeah, I shamelessly am saying this is something that I was involved in. So I let you know so
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`you can take it with a grain of salt because I’m involved. But if I don’t tell you, I’m not involved.”
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`48.
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`In reality, McAfee had falsely and misleadingly stated that he was an adviser to the
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`issuer of that token instead of disclosing the truth: that he was a paid promoter and nothing more.
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`49.
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`Further signaling the importance to investors of knowing whether McAfee was being
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`compensated for his endorsements of ICOs—that is, whether McAfee’s recommendations were
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`biased—investors repeatedly replied to McAfee’s ICO-endorsement tweets to ask whether he was
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`being paid for his promotions.
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`50.
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`As more fully alleged below, in responses to these questions McAfee affirmatively
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`lied to and misled investors about whether he was receiving compensation for the touts.
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`51.
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`For example on December 15, 2017, McAfee highlighted the purportedly unbiased
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`nature of his recommendations on Twitter in a reply to a user who had tweeted “Paid post?” in
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`response to McAfee’s recommendations. McAfee replied: “Get fucking real. There is no amount of
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`money that could make me say something I do not believe, or something I think may not happen.”
`
`52. McAfee also explicitly denied his role as an ICO promoter in the December 2017
`
`Interview, where he stated:
`
`Now, I’m not saying that I’ve not tweeted out coins that I am invested in,
`but when I do, I tell everybody. If I say this is a great coin and nothing else, I
`promise you I don’t own any of it, I am not affiliated with it, and I’m not
`interested in whether or not you buy it. What I’m interested in is educating
`the public about what is available.
`
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 13 of 55
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`53.
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`These statements were false or misleading when McAfee made them because, as he
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`knew or recklessly disregarded, he was, in fact, being compensated for touting the Touted ICOs.
`
`54.
`
`As more fully alleged below, McAfee made additional false and misleading
`
`statements to potential investors about his involvement with some of the ICOs he was touting. For
`
`example, he publicly and falsely claimed that he was providing advisory services to some issuers’
`
`business operations, while simultaneously confirming in private messages that he provided no actual
`
`assistance to the Touted ICOs other than his promotions of the ICOs themselves.
`
`55.
`
`In a private Twitter conversation, a correspondent informed McAfee that he was
`
`buying into his first ICO, to which McAfee responded: “What’s the ICO? I’ve partnered with a
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`number of ICOs. They use my name and my participation in marketing materials in exchange for a
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`substantial percentage of the coins. It feels like I’m stealing from them by getting paid for doing
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`nithing [sic] . . . .”
`
`56. When another correspondent privately approached McAfee in December 2017 about
`
`McAfee serving as an adviser to the company’s business, McAfee responded: “Not interested. I have
`
`no time to sell. If you want to use my name we can discuss.”
`
`57.
`
`As more fully alleged below, McAfee also publicly and falsely claimed that he
`
`personally invested in certain ICOs he was promoting, boasting how much money he was making
`
`from investing in digital assets (thus misleading investors into thinking that he was making money
`
`from identifying and investing in ICOs he believed were worthwhile) when, in reality, he was making
`
`no such investments—he was being paid for the promotions.
`
`58.
`
`For example, McAfee personally appeared in a rap music video that he posted to his
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`Twitter account in January 2018, shortly after the end of his promotion of ICO-1, called “The
`
`McAfee Effect,” which included the lyrics: “Pickin ICOs that’s a . . . cash vault.”
`
`
`
`
`
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 14 of 55
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`1.
`
`McAfee’s ICO-1 Tout
`
`59.
`
`On December 17, 2017, approximately three days after the start of ICO-1, the
`
`founder of ICO-1 (Founder-1) contacted McAfee to ask him to promote ICO-1, stating: “We do
`
`not want to loose [sic] ourselves in the ocean of ICOs and we need your help for that.”
`
`60.
`
`On December 19, McAfee replied that in exchange for 10 BTC and “a substantial
`
`percentage of issued tokens,” McAfee would, among other things, “tweet reasonable numbers of
`
`tweets, which have a huge impact on the Cryptocurrency market.”
`
`61.
`
`Founder-1 replied to McAfee that Issuer-1 would “pay 10 BTC” for McAfee’s
`
`promotion of ICO-1, but that Issuer-1 had not yet raised funds sufficient in ICO-1 to make such a
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`payment. Founder-1 instead proposed that he give McAfee daily payments amounting to 30% of the
`
`total funds raised in ICO-1. McAfee agreed to promote ICO-1 on these terms.
`
`62.
`
`On December 20, McAfee began his promotion of ICO-1 by tweeting from his
`
`official Twitter account that Token-1 was “[t]he first token to open the door to a new paradigm of
`
`social marketing” and was “a world changing coin and a world changing concept.”
`
`63.
`
`Also on December 20, Watson’s then-wife tweeted a question to McAfee about
`
`ICO-1 at the direction of McAfee and Watson. Seeking to increase the supposed allure of his
`
`recommendations, McAfee publicly reply-tweeted that his “recommendation for [ICO-1] is for
`
`experienced crypto investors only.” Despite his statement that ICO-1 was for “experienced”
`
`investors only, McAfee quickly and soon thereafter directed another potential investor who replied
`
`in the same twitter thread to ICO-1’s website, where the sales of Token-1 were ongoing.
`
`64.
`
`On December 22, in a public reply to a user commenting on McAfee’s first
`
`promotional tweet about ICO-1, McAfee insisted that “implying [Token-1] is a joke is a huge
`
`mistake. Go to [Issuer-1’s website] and read it. You will see it is in the mold of a winner.”
`
`
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`14
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 15 of 55
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`65.
`
`As McAfee began tweeting about ICO-1, Issuer-1 concurrently began promoting
`
`that McAfee was the issuer’s main adviser and posted his picture on its website. McAfee initially
`
`falsely created the impression that he was lending his expertise to the company, stating in replies to
`
`questions posted by other users in response to his promotional tweets: “I am making sure that their
`
`cyber security is perfect. Hackers are targeting coins as easy money these days.” McAfee knew or
`
`recklessly disregarded the fact that he was not providing any cyber security guidance to ICO-1.
`
`66.
`
`On December 20, in furtherance of his efforts to promote ICO-1 and Token-1,
`
`McAfee also falsely tweeted that “[he] urged [Issuer-1] to let [him] assist” with ICO-1, when in fact,
`
`as McAfee knew or recklessly disregarded, Founder-1 had sought McAfee’s promotional assistance
`
`and McAfee was not “assisting” the company other than by making promotional tweets.
`
`67.
`
`Later, on December 20, after McAfee confirmed to Founder-1 that he had received
`
`his first payment for the promotion of ICO-1, McAfee coordinated with Founder-1 to further
`
`increase the impact of his promotion by falsely disclaiming any connection between himself and
`
`ICO-1. McAfee instructed Founder-1 that “for the next few weeks, take my name off your site. I
`
`want to be able to leverage my Twitter with people assuming I have no relationship with you.
`
`Removing my name now will add at least a million dollars to your sale.”
`
`68.
`
`On December 20, McAfee tweeted that while he could not guarantee the success of
`
`Issuer-1, he could “guarantee that [he saw] no better ICO than [ICO-1] at the current time.”
`
`69.
`
`On December 21, McAfee publicly reply-tweeted: “If . . . you don’t mind holding a
`
`coin for a couple of months then [ICO-1] is the best ICO out there,” and tweeted: “For those of my
`
`trolls who call everything that I recommend a shit coin -- please read [ICO-1]’s white paper. It is
`
`brilliant. [ICO-1] is also the first social marketing coin. Its potential could equal the success of
`
`Twitter. So troll elsewhere or wise up and buy [ICO-1].”
`
`
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`15
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`Case 1:20-cv-08281-JGK Document 1 Filed 10/05/20 Page 16 of 55
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`70.
`
`In a continued effort to ensure that more investors bought into ICO-1, whose
`
`tokens could not at that time be resold on digital asset trading platforms, on December 24, McAfee
`
`tweeted: “For everyone who has DM’d me about [ICO-1]: It is an ICO. You can’t buy it one day
`
`and sell it the next. It is a longer term play. Wait for the ICO to finish and get listed on exchanges.
`
`You must wait, but the returns will be way better. I explained this in my original tweet.”
`
`71.
`
`On December 27, McAfee falsely reply-tweeted publicly: “[ICO-1] is also a great
`
`ICO opportunity. . . . I have personally purchased a significant amount i[n] [ICO-1] . . . .” McAfee
`
`knew or recklessly disregarded the fact that he had made no such investment in ICO-1.
`
`72. McAfee also repeatedly promoted ICO-1 during the December 2017 Interview,
`
`noting that “one of the reasons [he] like[d] [ICO-1] so much” is that “[t]he potential for growth is
`
`tremendous,” predicting that “[i]f that thing does not go up by a factor of 50 in the first year [he’d]
`
`eat [his] shoe,” and promising “it’s going to make you more money than anything you can invest in.”
`
`73.
`
`During the December 2017 Interview, McAfee further and falsely claimed that he
`
`was touting ICO-1 solely due to its merits and its benefits to society: “So people go . . . , ‘Why are
`
`you promoting this?’ Because it is good for the world. It is good for you. It is good for everybody.”
`
`74.
`
`On January 8, 2018, McAfee falsely announced on his Twitter feed that he had
`
`“taken a formal advisory role in [ICO-1]. I heavily invested in [ICO-1], so I have a personal interest
`
`in helping ensure th