The U.S. Securities & Exchange Commission (SEC) announced today that it has agreed to settle all charges against Fyre Festival founder Billy McFarland.
McFarland founded both Fyre Media and a credit card company called Magnises (dubbed the ‘black card for Millennials‘). Those apparently sounded like viable ideas, though both McFarland and his associates got caught up in a fraud scandal after misleading over 100 investors about the nature of their businesses.
Of particular concern was the Fyre Festival, a scam that lured attendees with promises of a luxury musical getaway in the Bahamas.
According to the formal complaint filed by the SEC, McFarland, Chief Marketing Officer Grant Margolin, and independent contractor Daniel Simon intentionally collectively misled investors to dump money into both companies founded by McFarland for the Fyre Festival*.
Updated: Grant Margolin’s attorney, Michael Devorkin, has since emailed Digital Music News to clarify that Margolin was not convicted of intentionally duping investors and violating SEC laws. Rather, the SEC’s complaint alleges that Margolin was merely taking orders from McFarland, while not raising any flags and generally exercising extremely poor judgment. McFarland, as ringleader, was the one doing the ‘intentional’ misleading.
The complaint specifically states:
“Margolin acted at least negligently by unreasonably assisting McFarland in creating false or misleading statements concerning Fyre Media and Fyre Festival’s financial metrics, offers, and bookings, which McFarland provided to investors. By failing to raise questions about the documents he drafted and revised, Margolin’s conduct was sloppy and ill-calculated, and he did not employ the degree of care and skill that a reasonable person of ordinary prudence and intelligence would be expected to exercise under the circumstances.”
Instead, attendees found a makeshift tents, rabid dogs, and soggy sandwiches upon their arrival.The now-infamous Festival was set to take place in the Bahamas in April and was billed as a luxury destination festival for music fans. The festival received the backing of Ja Rule, but attendees say the event fell short of VIP accommodations and expertly prepared culinary dinners — to put things mildly.
The complaint also states that McFarland sought to mislead investors by providing fraudulent operational metrics for his companies.
That included delivering doctored account statements, and reporting that his personal stock holdings were in the $2.5 million range. In reality, they were worth less than $1,500.
The SEC’s Melissa Hodgman released a statement about the settlement, stating that McFarland gained the trust of his investors by portraying himself as a successful media company entrepreneur. That image was created with false brokerage statements and stolen investor funds as proof of his business prowess, all of which helped to entice more investors to fund his ventures.
McFarland has admitted to all charges filed against him by the regulatory group and will have to return $24.7 million to investors that he obtained illegally.
McFarland also agreed to be barred from holding an officer or director position within any public company for the rest of his life.
Margolin, Simon, and Fyre Media itself agreed to settle the case without admitting fault or denying the charges. Margolin received a seven-year officer and director bar and must pay $35,000 in restitution. Simon agreed to a three-year office and director bar and must repay $15,000 in restitution*.
Updated: Margolin’s attorney, Michael Devorkin, has also contested our use of the word ‘restitution,’ arguing that technically, ‘restitution’ in a strictly legal/regulatory definition can only be applied if profits are being handed back. Devorkin says his client “was not charged with making an [sic] profit and so could not be charged with restitution/disgorgement.”