As the tangled web around the disastrous Fyre Festival continues to unravel — with 11 civil lawsuits, unpaid vendors, and many unsatisfied customers after the would-be luxury music festival was postponed before it even began — one question among many keeps arising: Is company founder Billy McFarland facing prison time?
It would be premature to draw conclusions, but the possibility exists. For that to happen, a federal prosecutor will have to convince a grand jury to indict based on evidence of criminal intent — which means not just poor business judgment, but an intentional plan to defraud ticketholders. A source confirmed to Variety that the Department of Justice Fraud Section in the U.S. Attorney’s office in Manhattan has opened a case, including an FBI investigation that will span several states.
If an indictment is granted, a criminal trial is automatically set for 70 days, so the government does not rush cases to a grand jury. The 11 civil lawsuits pending against McFarland and Fyre Media include six class-actions and five private suits involving investors, vendors and individuals. The civil and criminal investigations will proceed in tandem, sharing evidence and resources.
The distinction comes down to this: If convicted of civil fraud, defendants are ordered to pay money; a criminal fraud conviction would bring a very real possibility of time in federal prison.
What did he and Fyre Media cofounder Ja Rule (real name: Jeffrey Atkins) do to get into this mess? They and their company attempted to stage a festival on an island in the Bahamas, scheduled for the weekends of April 28 and May 5, that has become a metaphor for disastrous planning and hubris. Would-be concertgoers arrived on the island expecting what had been advertised: a luxury festival featuring Blink-182, Migos, Major Lazer, Disclosure and others on an island purportedly formerly owned by Pablo Escobar (who actually never owned an island in the Bahamas). Instead, attendees who had been promised luxury accommodation and meals prepared by celebrity chefs found flimsy tents, boxed lunches and near-total disorganization — and long waits for flights to return to the mainland after airlines began refusing to fly would-be concertgoers to the overcrowded island of Exumas. The concert was postponed before it even began. It was, one production professional briefly associated with the festival told Variety, “incompetence on an almost inconceivable scale” (for more details, read Variety’s interviews with former production personnel).
Not surprisingly, lawsuits ensued almost immediately. The first class-action suit was filed April 30 seeking $100 million in damages. Ten more followed. Although it remains unclear exactly how many Fyre Festival tickets were sold, a suit filed May 17 by the Boston-based Tablelist, seeks $3.5 million in refund monies on about 8,000 tickets sold. At prices ranging between $450 to and topping out at $250,000 for the ultra-VIP package (but averaging several thousand dollars), a minimum estimate puts consumer outlay at about $10 million. Fyre Media was also urging customers to deposit money into wristband accounts in lieu of cash; that likely accounts for several million more. So far, no refunds have been issued.
The large number of victims, huge sums of money and interstate activity involved in the Fyre fiasco made the festival a target for the Department of Justice. Criminal investigations often proceed quietly in the background concurrent with civil lawsuits. However, that may not be possible in this case, where the feds are being pressed to act quickly to freeze assets or risk the plaintiffs’ irreparable harm as a result of McFarland hiding or spending any money left from the ill-fated Fyre venture.
“The longer they wait, the greater the chance of the money disappearing, and the harder it is to trace,” says Laurie Levenson, who spent eight years as an assistant U.S. attorney and now teaches at Loyola Law School. “Who has control of those festival millions, what have they been doing with it and why? In order to bring criminal charges, this is key,” she says.
If McFarland has the financial resources to issue ticket-holder refunds, that — more than anything — would help keep his legal battle on civil footing, Levenson continues, noting that the mass consumer fraud was more of a red flag than the bad loans. “The government is not a collections agency, but it is charged with protecting public safety.” The criminal investigation falls under the jurisdiction of Manhattan-based Joon Kim, acting U.S. attorney for the Southern District of New York, and its complex fraud and cybercrimes unit.
A source involved with the investigations said that there has been DOJ outreach from private attorneys in New York and California. But the case was already on the federal radar due to the intense publicity it has attracted — Levenson admits that federal prosecutors sometimes pursue cases “based on headlines.” McFarland now appears to have officially secured the services of crisis-management firm FTI Consulting; a rep for the company declined Variety’s request for comment.
A hearing to freeze the assets of McFarland and Fyre Media scheduled for May 18 was to be the first step toward getting an accurate snapshot of the financial activity surrounding the ill-fated festival. If the financials indicate McFarland continued to sell tickets and upgrades when he knew he didn’t have the resources to produce the festival, it will be a serious problem in mounting his defense. Caitlin Robin & Associates got the case on calendar in state court in New York on behalf of a client, Oleg Itkin, a Fyre investor who seeks to recover a loan and interest totaling $800,000. The suit demands an “accounting of all assets, liabilities and property currently held, including without limitation bank accounts, brokerage accounts, investments, business interests, loans, lines of credit and real and personal property.” The court postponed the hearing to May 31 for “administrative reasons.” Claims have also been filed in state and federal courts in California, New York, Pennsylvania, New Jersey, Massachusetts and Florida.
The suits allege fraud, negligence, unjust enrichment and breach of contract. Fraud can be civil or criminal, and the line between the two is “very thin and very discretionary,” says Nathan Hochman, a former federal prosecutor who is now a partner at Morgan Lewis & Bockius. Hochman says that, in the case of the Fyre Festival, something like online ticket sales “can be treated in most cases as criminal wire fraud.”
The federal class action lawsuit filed April 30 in Los Angeles by attorney Mark Geragos provides a rough blueprint for criminal inquiry. Unsparing in its allegations, the complaint raises issues of securities fraud, stating “the festival itself was merely a front for a massive financial fraud akin to a Ponzi scheme” designed to inflate Fyre Media’s valuation, and also accuses the defendants of “knowingly lying” about festival accommodations, putting attendees at physical risk.
Asked about outreach to federal agents, Geragos declined comment, as did Rosemary Rivas, a partner at Levi & Korsinsky, which on May 3 filed a U.S. class action suit in Manhattan.
Geragos’s suit seeks $100 million, and while most of the other complaints have yet to specify a dollar amount, there is at least another $12 million in investor and vendor claims so far. But McFarland and Fyre seem financially insolvent — and like many defendants facing large court judgments, they seem like prime candidates for bankruptcy. Though in the months preceding the festival they collected millions from ticket sales and loans, they also spent a lot, chartering 737s, renting models and yachts for an elaborate promotional video, hiring social media influencers to promote the event and importing tents and supplies.
McFarland and his company also appear to be having trouble retaining attorneys and crisis managers. (Top white-collar crime lawyers charge between $500 and $1,500 an hour.) One attorney who had been sending out cease and desist letters on behalf of Fyre responded to inquiries saying he is “no longer representing them in any capacity.” Jason Benton of Hughes Hubbard and Reed recently responded to one of McFarland’s summonses, but did not respond to Variety’s inquiries. Hartmann Doherty’s Mark Berman had communicated to a plaintiff’s attorney as the attorney for Fyre Media, but when Variety sought to confirm whether the company is still his client, Berman said, “I do not presently have any comment.” The New York Times reported that Bronx-based criminal defense attorney Stacey Richman is representing Ja Rule, who has already spent three years in prison for tax evasion and weapons. Both McFarland and Ja Rule are listed as Fyre Media founders, while McFarland is also CEO.
Insofar as charging MacFarland with a federal crime, Stanford Law School co-director David Alan Sklansky, a former Los Angeles assistant U.S. attorney, said the decision “typically it has to do with the number of victims, extent of financial loss and egregiousness of the misrepresentation.” If the government decides it wants to prosecute the case, evidence will be presented to a grand jury, which will decide whether to indict. Levenson said the standard for moving forward “is actually pretty low,” at “probable cause.” If the prosecutor gets the indictment (and Levenson said it’s practically unheard of that they don’t), the case then proceeds to a jury trial, where the verdict must be unanimous. Convictions can be challenging.
“To convict, you have to prove that he actually did know – not that he should have known, but that he must have known. The standard is proof beyond a reasonable doubt. Civil fraud requires either proof by a preponderance of evidence or by clear and convincing evidence, depending on the jurisdiction,” Levenson said. Negligence may carry the day in civil court, but is “not enough for a criminal conviction.”
Because of the higher standard, a criminal conviction triggers an automatic win for the civil litigants, which means that while they will continue to move forward, sharing witnesses and evidence, the civil attorneys are happy to take a back seat to federal prosecutors.
Among the facts that will prove problematic for McFarland are multiple consumer claims alleging Fyre continued to send emails in the weeks immediately preceding the event urging festivalgoers to load more money onto their wristbands, or spring for upgrades. Also damning are investor claims that McFarland overvalued his company by fabricating real estate holdings and deals with A-list talent like Drake.
Even a criminal conviction can bring a wide range of results, with some getting probation or house arrest and others sentenced to prison. Since the window for prosecuting a federal crime is five years, and 11 civil lawsuits have been filed in less than one month, the company can expect more heat in the coming months.
If those injured — the ticketholders, the lenders, the vendors — don’t receive refunds, restitution and/or compensation, they may want the only thing left: revenge.