SEC Charges Failed Fyre Festival Founder and Others with $27.4M Offering Fraud | Hacker News Reader

SEC Charges Failed Fyre Festival Founder and Others with $27.4M Offering Fraud

sec.gov

195 pointsmoritzplassnig106 comments

This reminded me of Anna Delvey, the fake socialite who scammed a bunch of people in NYC: https://www.vanityfair.com/news/2018/04/my-misadventure-with...

It turns out she may have squatted in Billy McFarland's company's office for months, refusing to leave: https://www.thecut.com/2018/07/anna-delvey-scams-fyre-festiv...

I wonder if these people initially set out to straight up scam people, or if they got caught up in the "fake it till you make it" / Instagram culture, and just kept digging themselves deeper.

What's the difference? When the mob converts to a legit garbage haulit company, we're they just "faing it till they made it"? Obviously even an amoral criminal would prefer to make money legally, all else being equal

The latter scenario is actionable. We can't do much about people who are just inherently dishonest, but we can do something about a culture that teaches people that dishonesty is a normal and healthy part of growing a business.

The story of Anna Delvey was fascinating to read.

I can't help wondering if she was a sex-worker, it would cover a lot of the points in the story - the travel, the money, and the fact that people are clearly covering up details.

McFarland is in prison. The "related criminal charges" put him in the Federal pen.[1]

    Federal Bureau of Prisons Inmate Locator
    WILLIAM Z MCFARLAND
    Register Number: 91186-054
    Age:  	26
    Race: 	White
    Sex: 	Male
    Located at: Brooklyn MDC
    Release Date: UNKNOWN

While out on bail awaiting sentencing, he tried another fraud last month, selling fake tickets to real festivals.[2] That got his bail revoked and a quick trip to the Brooklyn Metropolitan Detention Center.

[1] https://www.bop.gov/inmateloc/ [2] https://variety.com/2018/biz/news/fyre-festival-founder-bill...

I don't understand why you would keep doing the very thing people are investigating you for.

Do what you know.

He was just following his passion :)

Who knows? It's not unusual criminal behavior, though. "One last score". Possibly an attempt to get some quick cash and flee the country. If so, it didn't work.

Why do alcoholics continue to drink, even though they know they’re harming themselves?

Compulsive behaviour is interesting.

To paraphrase Popehat: The kind of personality that gets people into trouble in the first place also compels people to dig deeper once they're in trouble.

> 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

Man. This whole event sounds like the perfect setup for a comedy. I really hope it's in the works.

https://www.eonline.com/news/847110/fyre-festival-the-movie-...

That's my favorite bit. I guess a passing knowledge of Chrome developer tools is all you need to fraudulently raise $27m.

I'm actually surprised there haven't been more cases of VC folks being defrauded (Theranos aside). The way those people like to just throw hundreds of thousands of dollars or more at newly formed, wholly unproven, companies is astounding.

Referrals are huge for VCs and maybe that's the reason. If they're going to take a huge risk they want some level of trust and the fastest way to establish that is if you've already gained the trust of one of their friends.

It looks pretentious from the outside, but it does help ensure fewer fraudsters get in to pitch them.

This is why "equality of opportunity" social reforms have to start with people in childhood, and the older the subject, the less likely the efforts are to succeed.

How do you know this doesn't happen all the time? Athletes and celebs get fleeced every single day but no one ever hears about it. No one in that position wants anyone to know they got taken. I can't imagine a VC would be any different. If you were a VC would you want anyone to know that the $X00,000 you put into an "early stage company" was actually spent on hookers and blow? Everyone knows there are shitty people out there but you were the one who gave them money. There is certainly a threshold where this turns into fraud and the authorities are called, but if you've lost a rounding error amount of money why would you risk the reputation hit over punishing a con artist? You blacklist the fraudster, sweep it under the rug, then hope your next investment covers the loss. What is surprising to me is that this is happening right out in the open all the time and no one is noticing, mainly because the fraudsters have CS degrees and know not to get too greedy or seem too incompetent. Everyone here knows you can get industry cred and a very nice salary for a couple years with nothing more than a clever slide deck.

What's the reputation hit?

If you are supposedly a brilliant investor and some idiot kid stole $200K from you, you wouldn't tell anyone because it would ruin your reputation as a genius.

In fact, it's in your best interest if the fraudster successfully cons your competition.

You have a point there the rich folks wouldn't want to be seen as gullible. Maybe I should have said "more reported cases of VCs being defrauded."

> "If you were a VC would you want anyone to know that the $X00,000 you put into an "early stage company" was actually spent on hookers and blow?"

Well, if I'm a venture capitalist investment type that probably means I have "fuck you money" so... yea, actually I would. If I spent 6 figures on coke and whores then I'm telling everybody.

Those who flaunt don't have.

It’s much more likely that a startup goes under from bad luck, bad execution, or just not being one of the 0.001% that make it versus deliberate fraud.

Or the abridged version of "Catch Me If You Can"

Cue a scene where they apprehensively keep adding 0’s to their forged document while their smile grows.

Billy McFarland's Wikipedia page [1] is an entertaining read.

My favorite part of his story: "federal prosecutors in Manhattan said that from late 2017 to about March — months after Mr. McFarland had been charged ["with wire fraud in relation to Fyre and Fyre Festival"] — he ran a company that sold fraudulent tickets to exclusive events like the Met Gala, Burning Man and Coachella. In one case, the authorities said, two customers flew from Florida to New York for the Grammy Awards, only to be turned away at the door" [2].

Not sure how someone becomes this irredeemable at just twenty-seven year old.

[1] https://en.wikipedia.org/wiki/Billy_McFarland_(entrepreneur)...

[2]https://www.nytimes.com/2018/06/12/arts/fyre-festival-organi...

Yes. I read this. It seems he was so brazen to commit fraud even after he had been charged. I'm not a psychiatrist but its either he is a egomaniac sociopath or just really unintelligent.

> Not sure how someone becomes this irredeemable at just twenty-seven year old.

How is this a function of age?

More time on earth means more opportunities to commit fraud.

How come? Opportunities are out there up for anyone to grab.

If anything, the guy deserves credit for spotting them earlier (than usual, if that's what you imply).

No one, anywhere, at any time, deserves any credit for "spotting opportunity for committing fraud"

More-over, he had time on earth to accumulate the experience/maturity that eliminates stupidity as an explanation, but also not enough time to accumulate the responsibilities that sometimes explain fraud.

Fraud at 18? -> Stupid kid (obv., fraud is never ok)

Fraud at 45 with three dependents on the verge of bankruptcy? -> poor bloke, the choice between a big personal risk vs. failing your family really sucks (obv., fraud is never ok)

Fraud at 27 with no real responsibilities in life? -> WTF?

Insufficient time on Earth to accumulate the skill & cunning to avoid getting caught, also.

die a hero, or live long enough to see yourself become the villain

I wonder how long until his wikipedia redirect gets changed from "entrepreneur" to "con artist".

When I read it on the page I was trying to figure out how to combine fraud and entrepreneur. Fraudtrepeneur? Entreprenfraudster? Frentreprenaud?

Fraudrepreneur

Contrepeneur

Oh that's better than what I had aha.

"Consultant" is also fitting. http://dilbert.com/strip/1998-08-24

I dunno. I knew a couple people in high school that I wouldn't have been surprised at all to hear they got arrested for something like this. And one particular little shit in junior high...

The Wikipedia entry is a gift that keeps on giving:

> She added that McFarland's short but eventful career showed a "pattern of deception" and "overpromising luxury experiences that were not delivered". McFarland told the court that he was broke and could not afford a private attorney. McFarland later hired a private attorney.

Real estate developer parents could've flipped for it.

Looks like the wikipedia page got taken down (?!?!)

> "two customers flew from Florida to New York for the Grammy Awards, only to be turned away at the door"

Those were beta users of a growth startup; the bugs are going to be ironed out in the next version /s

Another point of view: at no time is any human being irredeemable.

This doesn't have the appreciation of nearly enough people in this world.

Too many people in the world appreciate this. The world would be a much better place if fraudsters never got second chances.

Look at who is running the world now.

Amen, brother. A high trust society is bred by religiously killing off the dishonest. "Nice guy" weaklings make the world a much worse place.

We've banned this account for repeatedly breaking the site guidelines. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.

You do good work dang, but I think you're being a little overzealous in this specific case. This is the first complaint I've received about my presence here, and in general my comments seem to be well received.

On second look, yes—a bit overzealous in this case. I've unbanned your account. But can you please follow the basic idea here? if you have a substantive point to make, make it thoughtfully; if you don't, please don't comment until you do.

If by well-received you mean upvoted, that alas isn't enough to ensure that commenters are following the rules. If it were, HN wouldn't need moderators.

Thank you. I'll do my best.

The tempting question: would you have shot Hitler at the height of WW2?

It doesn't work. All the alternate timelines are worse, usually because Germany has more time to prepare, gets atomic weapons and there's a global nuclear war. That's why the time cops have a permanent covert bodyguard detail on him. Hardest target in history - except maybe the Time Traveller's Ball. Their cordon on that one was pretty tight too.

On what possible objective basis can this be stated as fact?

"None." Got it.

Our economic system happily churns through people like a factory production line.

The question is; would you rather give this guy a second chance or give that chance to someone else who hasn't yet had any opportunity to prove themselves (there are many of these)?

You give second chances to people who make an honest mistake. This is not an honest mistake. It's fraud. He is rotten at the core. He goes straight in the trashcan.

But at some point, it's not worth trying anymore, like a house which is 90% on fire.

As soon as you discard someone as such, you're just basically just consigning them to do even more of the same. Why even bother trying change if you are actively expected to not do any better?

It's refreshing to see a viewpoint that doesn't jump straight to throwing bad guys to the wolves.

Auto-monkeysphering - involuntarily deciding you won't need to think about that person again in the future, reducing the cognitive load of humans to need to care about by one, forever.

> Not sure how someone becomes this irredeemable at just twenty-seven year old.

Bro culture.

"Let's just do it and be legends, man." This sentence has made it into the vernacular of my group of friends, whenever we start considering something that isn't at all thought out yet.

Definitely a go-to phrase for me when tackling a hard challenge. Followed up with "except let's actually do it, not like that dumpster fire of a festival."

This is inherently the same as YOLO.

What about the people who promoted it without disclosing that they were paid to promote it? Certein Instagram celebrities come to mind.

If they weren't in on the fraud, I'm not sure they should be held responsible.

It dependa on how they presented it. If they didn’t say clearly it was an ad, or a sponsor, I think they should be held responsible.

> If they weren't in on the fraud, I'm not sure they should be held responsible

They shouldn't be held criminally responsible. Civilly, however? Fair game. If you make money selling a product, you have a duty to check it isn't a scam.

Isn't this a big issue with Amazon right now? What does the law say about it in that case?

Shouldn't that be the corporate entity which should be held responsible? Not employee ABC?

If paid product placement without a disclaimer is illegal, I'm not sure any major movies or TV shows are on good legal footing.

http://adage.com/article/digital/ftc-cracking-social-influen...

Huh, TIL! It seems very weird to apply this to Instagram and not movies, where undisclosed product placement is rampant.

I know there's a huge swath of "promotional consideration" names at the end of a lot of shows now, so that might be where they dump a bunch of that stuff?

That's standard for game show prizes, obviously. I didn't realize it spread to other TV.

I think the difference is that celebrities and "influencers" are real (-ish) people, so if they say they recommend something, that's an actual piece of anecdotal data when deciding whether or not you want to buy into it yourself. If somebody in a movie says they're going to Fyre Festival, that might loosely associate the thing in your mind with "coolness" or whatever, but you're not going to mistake it for an actual endorsement from a real person.

I think the law actually states that media that is meant to be shown in a theater is exempt. I guess as to not take away from the experience of watching the movie.

Movies are fictional.

If a celebrity is giving an endorsement in a scripted movie I'm obviously going to think of the endorsement differently if theyre giving it in an Instagram post. That's where the FTC says "hey, you have to be clear you are benefiting from this advertisement" because otherwise (in a movie) it would be clear the endorsement isn't personal or organic.

Also not all of what you may call "product placements" in movies is paid. For one example, the red Swingline stapler in Office Space wasn't a paid product placement nor did Swingline even make a red version, it was a product invented for the movie, Mike Judge had an auto body shop do a paint job on a black stapler. Yet the movie created a market for red Swingline staplers, Swingline started producing red staplers, and it became their best selling product.

Look at most movie or TV show credits... there, for a fleeting flash of a second, you'll see "Promotional considerations (paid) for Company A, B, C".

There are eight lawsuits in play; one has been settled [1].

[1] https://en.wikipedia.org/wiki/Fyre_Festival#Lawsuits

The FTC's endorsement guide was only published in September 2017. Before then, nobody was following the rules. It would be pointless to pursue those who promoted Fyre Festival specifically, and impossible to pursue everybody.

The guide is just that, a guide. It was published in an era where everyday YouTubers/Yelp reviewers/MLMs/affiliate marketers/etc, without the means to afford a legal team, are approached with endorsement deals. In the past, it was typically established celebrities or businesses who were approached for endorsement.

The law behind the guide, Section 5 of the FTC Act, has been on the books for quite some time. The guide serves as an easily parsable reminder of that law.

I'm fairly certain there were regulations related to endorsement disclosure long before that guide was published.

> The Securities and Exchange Commission today announced that New York entrepreneur William Z. (Billy) McFarland, two companies he founded, a former senior executive, and a former contractor agreed to settle charges arising out of an extensive, multi-year offering fraud that raised at least $27.4 million from over 100 investors.

So the issue is already settled, and the 24.7M is just the fraud, not the penalty.

> McFarland has admitted the SEC’s allegations against him, agreed to a permanent officer-and-director bar, 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. Margolin, Simon, Fyre Media, and Magnises agreed to the settlement without admitting or denying the charges. Margolin has agreed to a 7-year director-and-officer bar and must pay a $35,000 penalty, and Simon has agreed to a 3-year director-and-officer bar and must pay over $15,000 in disgorgement and penalty. The settlements are subject to court approval.

I don't know what the forfeiture case involved, but this looks like a slap on the wrist given the numbers involved.

EDIT: > McFARLAND, 26, of New York, New York, pled guilty to two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison, and consented to a forfeiture order in the amount of $26,040,099.48.

from: https://www.justice.gov/usao-sdny/pr/william-mcfarland-plead...

That forfeiture does NOT look like a slap on the wrist

I mean, that forfeiture looks like "return most of the money you stole from the bank" with no punitive damages other than an officer-and-director bar, so does appear to be a slap on the wrist, unless he also serves time for the wire fraud.

You are correct - I was focused on the "did he get to profit from this despite getting caught" because I was worried about the positive incentive to be a fraud. However, lack of a positive when caught is NOT the same as a negative, so yeah, still a slap on the wrist, relatively speaking.

This is just the SEC charges. They mention a concurrent criminal case - this is where the actual penalties are going to be.

That money is spent though. There's nothing to return. He's going to have his wages garnished, hard, until he dies.

I don't think it's a slap on the wrist by any means. (And to be clear, I'm not being sympathetic when I say that. Fuck him.)

>New York entrepreneur

I'm thinking that this should have had ironic quotes around it. As in 'El Chapo Guzman, a "New York entrepreneur" on a grand scale...' or 'Elizabeth Holmes, a "New York entrepreneur" of the old school...'

Seems like a pretty generous settlement, doesn't it? He just had to give back the money. The "permanent officer-and-director bar" is there to prevent him from continuing to defraud people, but he really didn't have to pay an actual fine at all.

It's the difference between restorative justice and retributive justice. This is the former, and seems better for the public good.

I want them to know they'll lose everything they gained if they're caught. I don't want them coming up with ever more clever and socially destructive ways to avoid being caught because of harsh penalties.

Seems like the opposite to me. If there's no penalty to getting caught, why not keep trying? I'm not sure what "ever more clever and socially destructive ways to avoid being caught" you could be referring to

He's plead guilty to wire fraud since then, which may have a substantial prison sentence.

This is just the SEC's portion of the fine. They mention that the fine will be deemed as paid from the concurrent criminal trial. I'd look at that for actual punishment.

One thing I learned from reading Matt Levine's Money Stuff column:

The SEC does not itself have the power to engage in criminal prosecutions; it refers cases to the justice department (or other law enforcement agencies) for prosecution. That's why you always see these sort of consent decrees ("here's some money and I promise not to do it again") from the SEC.

This guy is going to jail (err, is already in jail) but it's not the SEC's job to put him there.

This makes me think of the Chinese social credit score system. What if it actually works and detects these kinds of people and locks them out of the system before they can cause a lot of damage?

Probably depends on the things that get measured, how easy it is to fake/rort those metrics, and how resistent to corruption the system is.

To me it sounds like a case of "interesting in theory, but probably difficult to make work in practise" things. Corruption would undermine the whole thing, if that's not the actual behind-the-scenes intent from the start.

failed fyre festival founder, that's quite a tongue twister.

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