The SEC charged cybersecurity entrepreneur John McAfee for recommending several initial coin offerings ("ICOs") to his social media followers without disclosing the compensation he received for promoting the ICOs.
In its Complaint, the SEC alleged that the entrepreneur touted multiple ICOs on social media without disclosing, and in some cases while falsely denying to investors, that he was being compensated by the issuers of the ICOs. The SEC alleged that the entrepreneur was paid more than $23 million in ICOs. Additionally, the SEC found that the entrepreneur falsely claimed that he had personally invested in the ICOs or acted as a technical advisor when recommending the ICOs, disguising his paid promotions as "impartial investment advice." After being exposed by a blogger, the entrepreneur allegedly attempted to sell the remaining ICO securities he held to investors without disclosing that he was attempting to sell his own holdings.
As a result of its findings, the SEC charged the entrepreneur and his security guard with violations of the antifraud provisions of the federal securities laws found in Section 17 ("Fraudulent Interstate Transactions") of the Securities Act and Section 10(b) of the Exchange Act and SEA Rule 10b-5 ("Employment of Manipulative and Deceptive Devices") for their deceptive promotion of the ICOs. Additionally, the SEC charged the security guard with violations of Section 15(b) of the Securities Act and Section 20(e) of the Exchange Act for aiding and abetting the entrepreneur's violations.
The SEC is seeking a final judgment to (i) permanently enjoin the entrepreneur and his security guard from further violations, (ii) order the disgorgement of all ill-gotten gains, (iii) impose civil money penalties and (iv) bar the entrepreneur from serving as a director or officer of a public company.
Commentary Kyle DeYoung
The SEC has made a point of charging well-known individuals for promoting ICOs on social media without disclosing that they are receiving compensation for doing so. While this Complaint against John McAfee also contains more serious allegations, he joins the ranks of Steven Seagal, DJ Khaled, Floyd Mayweather, and Calvin Harris (a/k/a T.I.) in being charged by the SEC for failing to disclose compensation while touting ICOs. While these cases are interesting because of the identities of the defendants, they are also a reminder that the SEC views ICOs as securities, and the federal securities laws apply to them in the same way as they do to other securities.
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