Posted by on July 1, 2017 2:30 pm
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Categories: Bahamas Billy McFarland Bloomberg L.P. cell phones cellular telephone Charles Ponzi Comcast Confidence tricksters Department of Justice Economy Exuma FBI Federal Bureau of Investigation Fyre Fyre Festival Hip hop Ja Rule KIM Law McFarland Software Term Sheet Twitter United States Agency for International Development

It’s been just over two months since thousands of attendees at an ill fated music festival in the Bahamas were left to fend for themselves in a Millennial’s worst nightmare of dying cell phonescardboard sandwiches, burning tents, roving bands of thievesferal dogs, and worst of all – anarchy at the bar.  Advertised as having “first-class culinary experiences and a luxury atmosphere,” things like the “Private Luxury Villas” turned out to be nothing more than USAID disaster relief tents.

As reported in late April, the festival was quickly canceled after the story broke, with event organizers Ja Rule (Jeffrey Atkins) and Billy McFarland “sort of” apologizing:

Fast forward to Friday night, when two months after Geragos and Geragos slapped Ja Rule and McFarland with a $100 million class action lawsuit, the Manhattan US Attorney’s office announced that Fyre Festival founder Billy McFarland, the organizer of the disastrous music festival, was arrested on federal charges that he defrauded investors who bought a stake in the media company.

In the complaint, the 25-year-old MacFarland reportedly cheated at least two investors out of about $1.2 million by lying about the revenue and income of Fyre Media  which he founded last year. He gave them phony documents claiming the company generated millions of dollars in revenue from thousands of artist bookings in a single year, when it really earned just $60,000 from about 60 performances.

Billy McFarland at a benefit event in Water Mill, NY.

Acting Manhattan U.S. Attorney Joon Kim said: “As alleged, William McFarland promised a ‘life changing’ music festival but in actuality delivered a disaster. McFarland allegedly presented fake documents to induce investors to put over a million dollars into his company and the fiasco called the Fyre Festival. Thanks to the investigative efforts of the FBI, McFarland will now have to answer for his crimes.”

He continued: “McFarland truly put on a show, misrepresenting the financial status of his businesses in order to rake in lucrative investment deals. In the end, the very public failure of the Fyre Festival signaled that something just wasn’t right.”

The fraudulent investment scheme unraveled in April when as we reported at the time, the Fyre Festival – which was advertised as a luxury getaway for moneyed millennials, who paid up to five figures for VIP packages – collapsed. Touted as an exotic festival with the promise of supermodels, haute cuisine, and wall-to-wall excess, guests instead arrived to a lack of facilities, sparse lighting, inadequate housing, and lots of cheese sandwiches. Many attendees were stranded in an airport through the night as they tried to get off the Bahamian island of Great Exuma.

That said, the festival fiasco certainly provided a novel spin on ponzi schemes.

According to Bloomberg, McFarland was arrested in New York and charged with wire fraud, which carries a maximum 20-year prison sentence. He is scheduled to appear Saturday in Manhattan federal court. His lawyer couldn’t be immediately contacted.

Some more details from the Justice Department’s complaint, courtesy of Bloomberg:

Fyre Media sought to build a mobile phone app that could be used to hire entertainers for clubs, concerts and parties. Later in the year, McFarland launched a subsidiary that began promoting his festival, claiming it would bring a global audience together to share a life-changing event, prosecutors said.

Meanwhile, the government said, McFarland was misleading his investors. Besides providing phony documents about the company’s performance, he is alleged to have altered a stock ownership statement to make it appear that he could personally guarantee an investment. He made it indicate that he owned shares valued at more than $2.5 million when he really owned stock worth less than $1,500, prosecutors said.

As we reported at the time, after the concert’s collapse, McFarland and his company were quickly hit with at least a half-dozen lawsuits from furious customers and unpaid vendors, up to and including the $100MM class action lawsuit noted above. Those complaints were followed by demands from backers looking to recoup their investment: funding that in one case was directly connected to how much attendees spent on such extras as tours, booze, and “upgrades.

Ironically, the amateur fraud wasn’t even enough as organizers ended up borrowing as much as $7 million in a last-minute bid to fund the doomed Bahamas music showcase, according to Bloomberg. One of those loans, for $3 million, is currently the subject of a civil case after the lender, EHL Funding LLC, claimed Fyre defaulted on payments.

Even more amusing, Bloomberg reports that in a March term sheet, Fyre Media claimed to be worth $90 million. The venture capital division of Comcast chose not to invest as much as $25 million in Fyre Media after issues in due diligence, according to a person familiar with the negotiations. Which deserves at least some modest congratulations for Comcast: it appears the company was the only one who actually did some diligence on the ponzi scammer; thousands of clueless, nouveau riche millennials did not .

It remains unclear where the stolen funds have been parked. To all those civil and criminal plaintiffs seeking to recover something – or anything, good luck.

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