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Fyre Festival: How a 25-year-old scammed investors out of $26 million

Fyre Media CEO Billy McFarland
Patrick McMullan | Getty Images

In April 2017, roughly 5,000 people spent hundreds to thousands of dollars for tickets to what they thought would be the experience of a lifetime: a luxury music festival in an idyllic tropical setting on a private island in the Bahamas.

Promotions for the much-hyped event, called Fyre Festival, promised "a place where the tropical sun shines all day, and our celebrations ignite the night. This is an invitation to unplug, connect with something deeper, and hunt for something bigger."

Festival-goers were promised a real-life island fantasy with luxury accommodations, gourmet food and the chance to party with celebrities like rapper Ja Rule and models Kendall Jenner and Bella Hadid. But the reality was closer to a disaster that played out in real-time on social media: Thousands of attendees arrived in the Bahamas to find disorganization as fellow festival-goers scrambled to claim a limited number of tents (rather than the luxury villas they'd been promised), some with bare, soaking-wet mattresses that had been left outside in the rain.

Instead of the "local seafood, Bahamian-style sushi, and even a pig roast" that was advertised, photos showing cold cheese sandwiches in foam containers went viral. And rather than "an immersive music festival [over] two transformative weekends," the many A-list musical acts promoted as headliners by Fyre Festival's organizers — among them, rappers Pusha T, Tyga, and Migos, as well as the band Blink-182 — dropped out in the days leading up to the event.

Attendees started leaving en masse and images and videos of distraught and disappointed ticket holders swept social media.

"In the concert industry, there has never been anything that remotely rivals the disaster that the Fyre Festival became," Bryan Burrough, a special correspondent for Vanity Fair, tells CNBC's "American Greed."

The disastrous Fyre Festival spawned lawsuits against the event's organizers, who included Ja Rule and Fyre Media CEO Billy McFarland, the latter of whom is now serving a six-year prison sentence for fraud. Fyre Festival is the subject of the latest episode of CNBC's "American Greed," which aired on Monday.

Here's how it went down.

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Who is Billy McFarland?

Fyre Media CEO Billy McFarland
Patrick McMullan | Getty Images

McFarland, now 27, grew up in New Jersey, where his parents run a real estate development company, and he briefly attended Bucknell University before dropping out after less than a year. McFarland presented himself as a successful serial entrepreneur, having launched multiple high-profile ventures before he turned 25. But FBI agent John Casale, who oversaw the criminal investigation into Fyre Festival and McFarland, calls McFarland a "serial fraudster" who launched a series of scams that the government says defrauded over 100 investors out of more than $26 million.

Before Fyre Festival, McFarland had made a name for himself in 2013 by launching a credit card venture called Magnises, which sold clients an invite-only black card (meant to be a financial status symbol similar to the American Express Centurion, or Black, credit card, but for millennials). He promised it would give them access to exclusive parties and VIP events as well as discounts at posh restaurants and clubs for a membership fee of $250 a year. However, critics pointed out that Magnises was not a real standalone credit card (it simply copied the magnetic strip of clients' original cards and all charges reverted back to those cards), and Bloomberg noted in one report that it was "never clear" exactly how many members Magnises had.

When Magnises began to stall due to customer complaints and defections, McFarland launched a new company, called Fyre Media, in 2016 and teamed with rapper Ja Rule (whose real name is Jeffrey Atkins). Fyre Media touted a celebrity booking app that promised to connect users looking to book musical artists like Jay-Z and Beyonce for private events with the touch of a button.

Fyre Media cofounders Billy McFarland and rapper Ja Rule (real name Jeffrey Atkins) pose with Aisha Atkins.
Patrick McMullan | Getty Images

How authorities say things went down

McFarland and Atkins decided to launch Fyre Festival in the Bahamas as a splashy venture to help promote the Fyre Media app. In late-2016, McFarland began soliciting investors to back both the app and the festival, though he later admitted to prosecutors that he "made repeated misrepresentations to investors" about his business while lying to them about how much money he had in place to put on the festival and telling them that Fyre Media was already worth at least $90 million.

McFarland also claimed he'd sold Magnises for up to $40 million, but "in reality, he did not sell Magnises and that was a lie to the investors," Casale says.

McFarland also lied to investors by telling them they would have the right to a payout should the festival be cancelled, when in fact he'd secured no cancellation insurance policies, the Justice Department said.

In reality, McFarland had reportedly grossly underestimated the cost and time it would take to organize a music festival on the scale that Fyre Festival's glossy promotions would promise. Despite warnings from vendors and contractors that it would take over a year to plan and execute Fyre Festival, McFarland still decided to go full steam ahead on his plan to pull off the event in a matter of months.

While McFarland's greatest talent was "selling himself," according to Vanity Fair correspondent Burrough, McFarland was also "just stunningly ignorant of what it would take to make his promises a reality."

"In his own mind, he was too big to fail," says the FBI's Casale.

Meanwhile, McFarland set about marketing the event by paying to fly supermodels Bella Hadid, Emily Ratajkowski, Allesandra Ambrosio and others on a private plane to the Bahamas for a promotional photo shoot that would frame Fyre Festival as the luxury experience McFarland wanted prospective attendees to think it was. In the months leading up to the festival, Fyre Media even paid numerous celebrities and influencers to tout the festival on their social media accounts, including a reported $250,000 payment to Kendall Jenner for just one Instagram post that she sent out to her more than 100 million followers.

A few weeks before Fyre Festival, McFarland's company defaulted on a nearly $3 million loan (according to a lawsuit later filed by lender EHL Funding), while a potential investment from Comcast Ventures, worth up to $20 million, fell through at the last minute, with the venture capital firm saying it had passed on the investment "after conducting thorough due diligence."

With a lack of actual capital, Fyre Media (which the government says only booked $57,443 in revenue between May 2016 and April 2017) was forced to cut corners on the luxury festival McFarland had promised to thousands of attendees, while also stiffing numerous vendors who had performed work (from on-site construction to event planning and marketing) on McFarland's promise of being paid once more investments came in.

In the end, the failure of Fyre Festival and McFarland's misrepresentation of Fyre Media ended up costing McFarland's investors (including Atkins, aka Ja Rule) more than $26 million, authorities said. McFarland, who admitted to falsifying documents, including bank statements, that he showed to investors in order to secure their funds, pleaded guilty in 2018 to three counts of wire fraud, one count of bank fraud and a charge of making false statements. (Amazingly, McFarland actually had to plead guilty twice, because prosecutors found that he was operating a fraudulent ticketing scam while out on bail from his initial charges stemming from Fyre Media. McFarland's follow-up scam offered to sell tickets to high-profile events like the Grammy Awards and the Met Gala despite not holding tickets.)

In October 2018, McFarland was sentenced to six years in prison and ordered to pay more than $26 million in restitution to the investors and customers he defrauded. McFarland also reached a settlement with the U.S. Securities and Exchange Commission over fraud charges in July 2018, with McFarland agreeing to a lifetime ban on him ever serving as a director or officer of a public company.

McFarland apologized during his sentencing, saying his actions were a result of his "fear of letting everybody down."

However, the SEC noted in a statement announcing McFarland's settlement that the Fyre Media cofounder "used 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."

Meanwhile, many Fyre Festival attendees have told reporters over the past two years that they have not been able to secure a refund for the tickets they purchased, though some say they've had luck getting refunds by going through their banks or credit card companies to dispute charges.

At the same time, a $100 million class action lawsuit filed in May 2017 by ticket holders against the rapper Atkins and Fyre Media's chief marketing officer, Grant Margolin, was dismissed in July 2019 by a federal judge who said the lawsuit did not produce enough evidence to prove those organizers knew the event would be a disaster. At least one separate lawsuit, however, netted a multimillion-dollar judgment for two attendees against McFarland, while others remain ongoing.

Atkins and other Fyre Media executives have not faced any criminal charges stemming from Fyre Festival, with the rapper even saying that he himself was scammed by McFarland and lost an undisclosed amount of money investing in the venture.

Meanwhile, Margolin and Daniel Simon (an independent contractor, and high school friend of McFarland's, who had a role in Magnises, Fyre Media, and the festival) both agreed to deals with the SEC to settle charges over their roles in the fraud. Margolin agree to pay a $35,000 civil penalty and to a seven-year ban on him serving as either a director or officer of any public company, while Simon agreed to pay a $15,000 disgorgement and penalty as well as a three-year ban on being a director or officer of any public company.

Similarly, none of the models or celebrities who promoted Fyre Festival have faced any charges, though a New York bankruptcy judge did rule in January 2019 that Jenner and the agencies representing models Hadid, Ratajkowski and others could be subpoenaed by Fyre Media's bankruptcy trustee in order to determine exactly how much money each of those models and influencers received from McFarland and Fyre Media to help market the doomed festival. Including Jenner's six-figure payment for a single Instagram post, Fyre Festival paid out more than $5.2 million in total to influencers and prospective celebrity performers, court records show.

Watch new episodes of CNBC's "American Greed" Mondays at 10 p.m. ET/PT.

Don't Miss:

The island that was used to promote the Fyre Festival is on sale for $11.8 million

How an ex basketball coach tried to pull off the biggest college admissions scam ever, allegedly roping in CEOs and celebs

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Fyre Media CEO Billy McFarland
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