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.

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.

Another Tax Clinic Amicus Brief Success Story!

2019 is turning into a banner year for cases in which GSU’s own Philip C. Cook Low Income Taxpayer Clinic and the Harvard Federal Tax Clinic have partnered up to file amicus briefs.  On April 2, the United States Second Circuit Court of Appeals reversed the United States Tax Court in Borenstein v. Comm’r of Internal Revenue (No. 17-3900).

This was a case that the clinics had been involved with for some time, as they had filed amicus briefs when the case was in the United States Tax Court as well.  For a good discussion on the background of the case before it landed in the Second Circuit, see here and here.  In a nutshell, the case involved a very technical application of the statute of limitations applicable to receiving tax refunds and a question over whether taxpayers who request extensions to file their tax returns but who then end up not using the extension experience a 6 month “black hole” in the middle of their refund statute in which they lose their ability to obtain a refund, only to regain it after the six month window has passed.

The roots of this problem go back to Congress’ attempt to remedy unfairness in the refund statute and to legislatively correct a limitations consistency problem from the Supreme Court’s decision in Comm’r of Internal Revenue v. Lundy, 516 U.S. 235 (1996).  Normally, taxpayers have a three year lookback period to request refunds if they receive a notice of deficiency (i.e. a notice from the IRS stating that the IRS believes they owe additional tax).  However, under prior law, this lookback period was shortened to two years if the IRS sent a notice of deficiency before the taxpayer had filed a tax return.  Congress rightfully believed that a three year lookback period should apply regardless of whether the return was filed before the IRS issued a notice of deficiency and accordingly amended IRC § 6512(b)(3) to state that a three year lookback period would apply for refunds if the IRS mailed a notice of deficiency “during the third year after the due date (with extensions) for filing the return” and before the taxpayer had filed the return. Continue reading

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