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.

Georgia State Investor Advocacy Clinic Participates in SEC Summit

As part of the Georgia State Law Investor Advocacy Clinic’s efforts to represent the interests of retail investors, the Clinic regularly participates in events that highlight the experiences retail investors face in the securities industry. On April 4, 2019, student interns Brook Ptacek, Kevin Mathis, Caitlyn Scofield, Caleb Swiney, and Esmat Hanano, along with Associate Clinical Professor Nicole G. Iannarone, participated in the inaugural U.S. Securities and Exchange Commission (SEC) Investor Advocacy Clinic Summit. The SEC invited the Georgia State Clinic, along with other investor advocacy clinics from all over the country, to SEC headquarters in Washington D.C. The Summit brought together students who routinely work with retail investors to share their experiences with the SEC.

Investor Advocate Rick Fleming welcomes securities arbitration clinics to the SEC

The Summit opened with welcome remarks from Rick Fleming, SEC Investor Advocate, and Tracey McNeil, SEC Ombudsman.

Gerri Walsh, President of the Financial Industry Regulatory Authority (FINRA) Foundation, also welcomed the clinics and thanked them for the work that they do for retail investors.

Next, the students heard from SEC Commissioner Robert J. Jackson Jr. about how important the clinics’ work is and shared lessons  he learned on his journey to becoming an SEC Commissioner.

Following Commissioner Jackson’s remarks, the clinics participated in breakout discussion sessions focused on three main topics: 1) private placements and the accredited investor definition, 2) fund retail investor experience and variable annuities, and 3) combating retail investor fraud.

Esmat Hanano shares group discussion results with Summit attendees

Georgia State took part in the breakout session on fund retail investor experience and variable annuities. The students met with Marc Sharma, Chief Counsel of the SEC Office of the Investor Advocate, and Michael Kosoff, Rachel Loko, and Michael Pawluk from the SEC Division of Investment Management. During the breakout session, the students offered their thoughts on different tools that the SEC could implement to improve disclosure procedures for retail investors.  After the breakout sessions, the clinics came together to share the highlights of their sessions with the group and continue the conversation on how better to protect retail investors. Esmat Hanano represented GSU during the group session.

Over lunch, the clinics heard remarks from SEC Commissioner Elad L. Roisman. Commissioner Roisman shared his three keys to success as a young lawyer starting out on his or her career. He shared his views on some of the biggest challenges facing the SEC today and remarked on the necessity of clinics in giving voice to retail investor concerns. In the afternoon, the clinics heard from Charu Chandrasekhar, Assistant Regional Director of the SEC Division of Enforcement in New York, and Rick Berry, Director of FINRA Dispute Resolution. Director Chandrasekhar remarked on the types of cases the SEC was seeing in New York and how clinics can help with the mission of the SEC Division of Enforcement. Director Berry spoke on the role of clinics during FINRA Dispute Resolution and how they can continue helping retail investors navigate arbitration proceedings with institutional actors and broker-dealers.

Georgia State presents #NoShame at the SEC

Lastly, the clinics each gave presentations on a number of topics. The clinics were asked to give a PowerPoint presentation in a Pecha Kucha format—20 PowerPoint slides with 20 seconds for each slide. Georgia State ended the day with a presentation on empowering investors to speak up about their experiences with securities industry. The students proposed starting a social media campaign to destigmatize the conversation around money to create a community of investors sharing their experiences with each other.   The views expressed during the presentations were the presenters’ own and do not necessarily represent the views of the Commission, individual Commissioners or members of the Commission staff.  The Georgia State law presentation can be found here.

The Clinic thanks the SEC for inviting us to such an important event and allowing us to give voice to the experiences that retail investors have when dealing with the securities industry.

On the Power of Empathy

By: Esmat Hanano, IAC Student Intern Spring 2019

During my two semesters in the Clinic, I have had a number of amazing opportunities. I think the most important, and useful, opportunity was learning about how critical empathy is for a successful attorney. From helping clients reach a resolution to their disputes to advocating on behalf of retail investors in different settings, empathy plays a significant role in an attorney’s work. My experiences in the Clinic showed me how versatile empathy is for the work of an attorney. Moreover, my time in the Clinic has also taught me how to empathize with clients and how to use that empathy for the benefit of the client.

A common refrain throughout my courses in law school was that, more often than not, lawyers will have to cabin their emotions to help clients. My advocacy professors stressed the importance of remaining calm and collected during trials and appearances in court. Although this is sound advice for a court proceeding, it does not apply with the same force when interacting with a client. My time in the Clinic is evidence that empathy is a powerful tool for understanding the nature of the problem that the client is facing and for getting the client to trust their attorney.

To build a fruitful attorney-client relationship, clients have to trust their attorneys and know that they are working for their best interest. An attorney that shows empathy for their client’s situation can signal to their client that they understand the problem on a deeper level. The most impactful client interactions I have had in the Clinic were when the client simply thanked me for listening to their struggles with the securities industry. Sometimes all the client needs to move on from a bad relationship with their broker-dealer is an empathetic listener.

Empathy has other benefits beyond the attorney-client relationship. Empathy can make lawyers better advocates for their clients. When we empathize and understand the nature of the issue facing the client, we can convey those struggles to others in a more persuasive manner. The crux of effective advocacy is giving others insight into the issues our client is facing from the client’s perspective. By using empathy to convey that message, lawyers can make others understand the dispute in a way that they might not have before.

My time in the Clinic has shown me the versatile role that empathy plays in the work of attorneys, and I am excited to put my experiences in the Clinic to the test as new attorney.

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

Wednesday Word: the Howey Test

By: Caitlyn Scofield , Spring 2019 IAC Student Intern

Have you ever looked at your bank account and wondered where your money went? As an investor, you ask yourself the same question “what am I putting my money into”? There are many investment opportunities out there. The government has put into place certain regulations for investments. These ensure that certain information about specific investments are provided honestly and accurately to the investor. This is done through the Securities act of 1933 and the Securities Exchange act of 1934.  Yet not all investments are covered under these acts, only those that are determined to be securities are regulated in this way.

“How do I know if my investment is a security” you might ask?  In 1946, the Supreme Court answered that question by developing “the Howey Test”. Continue reading

Investor Ed Crossword Puzzles: Prohibited Conduct

All forms of investing carry some degree of risk. Brokers must be diligent in protecting their customers from additional, unnecessary risk. Brokers must never guarantee market or product performance. Unless a customer has given discretionary authority to trade on a consumer’s account, a broker must obtain authorization  or permission before conducting transactions. It is important to always read all documents before signing so you know whether your permission is required before a trade or if a broker can make a trade without express permission. Brokers should never recommend unsuitable securities, nor should they ever misrepresent a material fact about the product.

FINRA’s Best Execution and Interposition Rule 5310 requires a broker to use reasonable diligence in ensuring a customer’s transaction is executed at the best possible price available. A Broker should never charge excessive commissions or mark-ups on the purchase or sale of a security.

Furthermore, a broker engages in prohibited conduct if he or she engages in the switching of one mutual fund for another without a legitimate purpose. A broker should not remove a customer’s funds or securities from the customer’s account without the customer’s prior authorization. FINRA also prohibits brokers from trading ahead. FINRA Rule 5320 states a broker should never trade ahead by placing an order for the firm’s account before entering a customer’s order.

Test out your knowledge with this crossword puzzle: Continue reading