In many respects, the case of Billy McFarland's failed Fyre Festival scam reads as an example of exactly what not to do when trying to build your business.
Originally, McFarland sought to build a digital app that would connect commercial promoters and event planners with top artists and celebrities à la eBay or Uber. The app would create an auction-like space where event organizers could bid for top talent and vendors for their events. The ill-fated Fyre Festival of 2017 was organized to showcase the app's ability to streamline the luxury concert-going experience.
However, as court documents show, McFarland quickly found himself in over his head. In order to secure investors for his company, Fyre Media, he:
- Told investors Fyre Media had earned "millions" in income from talent bookings, though in truth it had only made $57,443
- Falsified records to show that the app had orchestrated more than 2,500 talent bookings in one month, though in reality it was only 60
- Altered stock statements to indicate he owned more shares than he actually did to convince investors of his ability to personally guarantee investments made in Fyre Media
- Indicated a prominent investor had agreed to invest in his firm when in fact it hadn't agreed yet because it was waiting on documents from Fyre Media to complete its due diligence
- Told investors he had obtained a $3 million-dollar loan from a bank when the bank had actually declined his request for a loan (one of several examples of the same kind)
- Reported $40 million in profits from the sale of his previous company, Magnises, when he in fact still owned the company and hadn't sold it
- Indicated that a group of Magnises' potential buyers were forming a joint venture to buy the company, when no such venture actually existed
With such a long list of lies and deceit, it may seem almost surprising that McFarland only pleaded guilty to two counts of wire fraud in March. However, wire fraud charges should never be taken lightly.
The ins and outs of wire fraud
Wire fraud is any fraud committed through interstate "wires," or telecommunications. In today's digital age, that includes the internet. Many of McFarland's falsified documents and misrepresentations were made the way most commerce happens today: via email. So, even though the days of dial-up are virtually gone, fraudulent activity conducted over the internet amounts to wire fraud.
To secure a conviction for wire fraud, prosecutors must be able to prove criminal intent to defraud others by use of wire or electronic communications. That's where many defenses to wire fraud lie. Sometimes an employee passes along misinformation by accident, or didn't fully understand the circumstances before making representations to a vendor, potential partner or investor. Unlike in McFarland's case, where evidence shows he actively altered or completely made up information to secure investors, not everyone accused of wire fraud seeks to intentionally mislead others.
Facing the music (literally)
As a federal crime, wire fraud is subject to the federal mandatory minimum sentencing guidelines. This means the defendant will incur certain penalties for conviction, even if they strike a plea deal. For wire fraud, those penalties often include heavy fines and time spent in a federal prison.
For his part, McFarland faces up to 40 years in prison - 20 years for each of his two counts of wire fraud. He has also agreed to pay back $26 million to investors, the total amount stolen. His final sentence hearing has been scheduled for June.