The Securities and Exchange Commission announced on Tuesday that it has settled the multi-million complaint that it filed against Fyre Fest creator Billy McFarland, on the heels of the failed music festival. Leading up to the Exumas, Bahamas-based two-weekend festival – which left festival-goers stranded at the Miami and Exumas airports and failed to provide other accommodations, as promised in its pricey weekend packages, before cancelling the festival in its entirety after guests arrived – McFarland raised “at least $27.4 million from over 100 investors,” according to the U.S. Securities and Exchange Commission ("SEC"), “arising out of an extensive, multi-year offering fraud.”
McFarland agreed to settle charges levied against him in a complaint filed last year by the SEC, the government agency responsible for enforcing the federal securities laws. The SEC alleged that McFarland ran afoul of the antifraud provisions of the federal securities laws by “fraudulently induced investments into his companies Fyre Media, Inc., Fyre Festival LLC, and Magnises, Inc., including in connection with McFarland’s failed venture to host a ‘once-in-a-lifetime’ music festival in the Bahamas.”
The government entity further asserted that “McFarland induced investors to entrust him with tens of millions of dollars by fraudulently inflating key operational, financial metrics and successes of his companies, as well as his own personal success – including by giving investors a doctored brokerage account statement purporting to show personal stock holdings of over $2.5 million when, in reality, the account held shares worth under $1,500.”
The 27-year old entrepreneur then used those “investor funds to bankroll a lavish lifestyle including living in a Manhattan penthouse apartment, partying with celebrities, and traveling by private plane and chauffeured luxury cars.”
“McFarland gained the trust of investors by falsely portraying himself as a skilled entrepreneur running a series of successful media companies. But this false picture of business success was built on fake brokerage statements and stolen investor funds,” said Melissa Hodgman, Associate Director of the SEC’s Enforcement Division.
The problematic business figure, who was also recently charged with engaging in wire fraud while out on bail in connection with a separate civil case over Fyre Fest, has admitted guilt in connection with the SEC’s allegations against him, agreed to a permanent officer-and-director bar (meaning that he may not legally serve as an officer or director of any public company), and agreed to disgorgement of $27.4 million, to be deemed satisfied by the forfeiture order entered in McFarland’s sentencing in a related criminal case.
While the SEC’s case against McFarland is just about finished, save for court approval of the settlement, a number of civil cases filed against McFarland by Fyre Festival ticketholders are still pending.
One such case – which was filed by Seth Crossno and co-plaintiff Mark Thompson, who spent more than $13,000 on the festival, according to the lawsuit, and sought upwards of $25,000 in damages from McFarland and co. in connection with claims of fraud, negligent misrepresentation, breach of contract, breach of implied covenant of good faith and fair dealing, negligence, unfair and deceptive trade practices and conspiracy to commit fraud – recently came to a close. In that case, which played out in a North Carolina state court, Crossno and Thompson were handed a win by way of a default judgment after McFarland failed to respond to more than a year’s worth of court proceedings.
An investigation that does not appear to be underway? One by the Federal Trade Commission ("FTC") in connection with the array of sponsored social media posts that models Alessandra Ambrosio, Bella Hadid, Hailey Baldwin, Emily Ratajkowski, Elsa Hosk, Paulina Vega, Lais Ribeiro, Rose Bertram, Gizele Oliveira and Hannah Ferguson, among others, posted as part of the larger marketing scheme for the festival.
The aforementioned models, amongst others, all took to their Instagram accounts in the spring of 2017 to post an slew of photos from a Bahamian getaway. Their documentation of their trip – which was a promotional one in connection with Fyre Festival – came alongside another image that they all posted: An orange color swatch bearing the following language, “So excited to announce the first ever #fyrefestival @fyrefestival fyrefestival.com." None of the imagery included any formal disclosures of their connection with McFarland or the festival, thereby almost certainly running afoul of the FTC's disclosure guidelines.
None of the model/influencers were named in connection with the SEC's investigation.