#FyreFraud and Investment Scandals: The Fyre Festival as a Warning in the New Age of Investing, Part 4

By: Esmat Hanano, IAC 2019 Spring Intern

Welcome back to the next installment in our series on the Fyre Festival. Today, we focus on the fallout from the Fyre Festival and similarities that it shares with other recent investment scandals. When the first weekend of the Festival arrived, McFarland and his team were still woefully unprepared. After making grand promises about the experience that attendees would have, they didn’t at all meet expectations. For weeks leading up to the event, attendees had been reaching out to gather more information on the structure of the Festival, travel details, and supplies they would need for their stay. Instead of answers, attendees received cryptic responses and were passed off from one employee to the other. This all culminated on the first weekend of the festival when guests began arriving at the airport. Upon landing, guests were immediately lost with no idea where to go or how to get to the event site. When guests did arrive at the site, they found absolute chaos. Eventually, flights back to Miami were chartered and the organizing team went into damage-control mode as they faced serious accusations.

The manner in which the Fyre Festival collapsed is, unfortunately, the latest in a line of recent investment scandals that have shocked the public. Two recent examples highlight this growing trend of widespread fraud that cripples the lives of many investors. In December 2008, Bernard L. Madoff was charged with eleven counts of fraud, money laundering, perjury, and theft. Investigators discovered that Madoff swindled his investors out of approximately $65 billion over the course of decades. The Ponzi scheme that he ran is considered the biggest fraudulent scheme in United States history. Madoff relied on his charisma to continue soliciting investments and explain irregularities with his company. Madoff also promised unusually high returns on investments with him—similar to the grandiose promises made by McFarland about the experiences that attendees would have at the Fyre Festival.

More recently, Elizabeth Holmes, former CEO of the now-defunct blood-testing company Theranos, was charged with fraud by the SEC. Holmes promised to revolutionize blood testing by creating a device that would allow for in-home blood testing and lab work. However, these promises were allegedly, according to the SEC, nothing more than an “elaborate, years-long fraud in which [she] exaggerated or made false statements about the company’s technology, business, and financial performance.” Holmes’s activity involved more than $700 million. She utilized the power of media and allegedly made false statements to the press and would then use those same press accounts to generate financial interest in her company. Further, she used the celebrity of her own board members and associates—similar to McFarland partnering with Ja Rule—to generate financial interest.

Check back for our final installment in the series to learn about the lessons retail investors can take from the Fyre Festival.