#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. Continue reading

Coachella in the Bahamas: The Fyre Festival as a Warning in the New Age of Investing, Part 3

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 Fyre Festival’s marketing and sales tactics to potential investors and attendees. Billy McFarland hired Jerry Media and Instagram “influencers” to help implement his marketing campaign. The influencers were dubbed “Fyre Starters” and used to “ignite” a “coordinated influencers marketing campaign.” The Festival hired 400 of these Fyre Starters and envisioned working with them in the future as brand partners. Further, McFarland filmed a promotional video with eight of these Fyre Starters to announce the Festival to potential investors and attendees. These marketing tactics were directed at millennials and Gen Z social media users. The organizers promised attendees would experience morning yoga on the beach, meditation, massages, henna tattooing, Bahamian-style sushi, luxury villas, and an extensive line-up of musical artists. In addition to all these experiences, McFarland stated that the Festival would take place on a private island in the Bahamas once owned by Pablo Escobar. Continue reading

Decadence in the Sun: The Fyre Festival as a Warning in the New Age of Investing, Part 2

By: Esmat Hanano, 2019 Spring IAC Intern

Welcome back to the next installment in our series on the Fyre Festival. Today, we focus on the Festival’s background and its purported goals. We will also take a look at the major players involved in organizing the Festival.

Billy McFarland and Jeffery Bruce Atkins (a.k.a. Ja Rule) were the main organizers of the Fyre Festival. McFarland intended the Festival to be a promotional event for the Fyre App, an online application for booking music artists and other entertainers. To market the Festival, the pair hired Jerry Media—a marketing company formed in 2011 an Instagram account gained widespread popularity. In addition to Jerry Media, McFarland hired Instagram models to promote the event through their own accounts and star in a promotional video for the Festival. The models that signed on to assist McFarland include Emily Ratajkowski, Kendall Jenner, Jen Selter, and Bella Hadid. These social media “influencers” were hired to specifically target millennial and Gen Z Instagrammers. Continue reading

Fire, Fire, Fire, Fire: The Fyre Festival as a Warning in the New Age of Investing, Part 1

By: Esmat Hanano, 2019 IAC Spring Intern

In 1974, the Ohio Players released the album Fire, featuring a number of hits including the titular track. As the Ohio Players sing “Fire, Fire, Fire, Fire,” you can almost imagine them trying to warn someone of danger. Fortunately, the song is focused on the band’s love interest rather than any impending inferno. But, the song could have proven useful as a warning to some unlucky investors in 2017. The Fyre Festival, a now infamous and failed music festival, tempted these investors with promises of vast riches and an unforgettable experience. Instead of the experience of a lifetime, investors were treated to an unmitigated disaster that led to numerous lawsuits against the companies involved in planning the festival, and the imprisonment of the mastermind behind the ill-fated festival.

Recently, the Festival’s spiral into chaos was chronicled in two documentaries by Netflix and Hulu. The documentaries provide an interesting look into the organizations behind the Festival and the tactics that were used. The renewed attention on the Fyre Festival, and the chaos it spawned, provides an opportunity to discuss a number of pitfalls that await investors in the rapidly-changing investing landscape of the twenty-first century. This series will focus on the background of the Festival, the tactics employed by Billy McFarland and the organizers of the Fyre Festival, and the lessons that retail investors can learn from the Festival. Additionally, this series will situate the Fyre Festival in relation to other scandals, such as Bernie Madoff’s Ponzi scheme and the controversy surrounding Theranos. As we move through each of these topics, retail investors can begin to understand how to be aware of “too good to be true offers” and what questions they should ask themselves in the age of the social-media influencer turned investment-promoter.

Losing the Game: Video Game Business Charged with Fraud

By Caitlyn Scofield, Spring 2019 IAC Student intern

As millennials come to the age where they are investing, they often follow the old mantra stick to what you know and often what we know is the power of social media and mobile gaming. This relatively new and burgeoning industry has become a gold mine for investors and entrepreneurs due to microtransactions and ad revenue.  This force driven by monetary transactions ranging from .99 cents to hundreds of dollars has a business model which focuses on what are referred to as “whales” in the industry. These are individuals who instead of making periodic small in-game purchases spend thousands of dollars on one game.  Many innovative and driven individuals have made significant profits following this trend. Yet not all entrepreneurs want to put in the effort to make their business successful and instead take advantage of hopeful investors. Continue reading

Investing Crossword Puzzles: Red Flags for Investor Fraud

Investments can be both fun and financially lucrative. However, it’s important to remain diligent. Brokers may expose themselves to conflicts of interest, some legal and some illegal. It’s not only the investor but also the broker, adviser, and member firm which stand to profit off of the investor’s hard-earned money. Be wary of brokers who make unqualified guarantees. All investments have some inherent risk. Investors should be skeptical about brokers who make performance guarantees about investment products. Continue reading

Investing Crosswords: Common Schemes

Unfortunately, the realm of investments and personal finance involves many different forms of nefarious activity.  Fraudsters quickly adapt to the changing financial policies, oftentimes using technology to take advantage of the naivety of unsuspecting victims.

Schemes involve major enterprises such as pyramid schemes, Ponzi schemes, fake check fraud, recovery schemes, and pump and dumps. Other fraudulent activity may be less organized on a smaller, tactical scale. Phantom riches, source credibility, social consensus, reciprocity, and allusions of scarcity are all methods in which fraudsters, tortfeasors, and ill-reputed financial advisers convince investors to part with their money.

Fake check fraud happens where a victim is convinced that they’ve won a contest and just need to wire money to the fraudster in exchange for a check, which is, you guessed it, fake. In a pump and dump scheme, fraudsters attract investors to a stock, and once the price increases based on the increased interest, the fraudsters sell off their shares.

Sometimes fraudsters will embellish facts to mislead investors. By appealing to the investor’s values, fraudsters will trick investors into believing the investment is more credible, profitable, and well known than it actually is.

Phantom riches involve fraudsters attracting investors by promising unrealistic wealth, dangling financial bliss in front of the victim. While source credibility tricks work by name-dropping a well-known firm or an expert, social consensus works by suggesting that lots of people trust the investment, respectively. Reciprocity involves the fraudster promising something in return for investing.

Vigilance, education, and a healthy dose of skepticism are simple ways in which investors can protect their money. It is important to remember that not only laymen become victims of these schemes, but also professionals such doctors, lawyers, and business men and women. Con artists and shady brokers are experts in finding ways to separate money from their victims. Diligently follow-up on investment opportunities before providing any financial information.

Now try our puzzle!

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