William McFarland Sentenced To 6 Years In Prison In Manhattan Federal Court For Engaging In Multiple Fraudulent Schemes And Making False Statements To A Federal Law Enforcement Agent
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that WILLIAM McFARLAND was sentenced today in Manhattan federal court to 6 years in prison for the following criminal conduct to which he had pled guilty: one count of wire fraud in connection with a scheme to defraud investors in a company controlled by McFARLAND, Fyre Media Inc. (“Fyre Media”), as well as its subsidiary (“Fyre Festival LLC”), which was formed to organize a music festival over two weekends in the Bahamas; one count of wire fraud in connection with a scheme to defraud a ticket vendor for the Fyre Festival; one count of wire fraud, in connection with his operation of a sham ticket scheme in which he purported to sell tickets to exclusive fashion, music, and sporting events though NYC VIP Access, a company controlled by McFARLAND; one count of bank fraud for writing a check with the name and account number of one of his employees without authorization; and one count of making false statements to a federal law enforcement agent in which McFARLAND, among other things, falsely denied the wire fraud and bank fraud conduct to which he pled guilty. McFARLAND pled guilty on March 6, 2018 and July 26, 2018 before U.S. District Judge Naomi Reice Buchwald, who imposed today’s sentence.
Manhattan U.S. Attorney Geoffrey Berman said: “Billy McFarland has shown a disturbing pattern of deception, which resulted in investors and customers losing over $26 million in two separate fraud schemes. As he had previously admitted, Billy McFarland did not deliver on his promises to his investors and customers. Today, McFarland found out the hard way that empty promises don’t lead to jet-setting, champagne, and extravagant parties – they lead to federal prison.”
According to the allegations in the Complaints and the First and Second Superseding Informations to which McFARLAND pled guilty, as well as statements made in court proceedings:
McFARLAND was the founder and chief executive officer of Fyre Media. In 2016, McFARLAND started Fyre Media to build a digital application that would allow individuals organizing commercial events, such as concerts, to bid for artist and celebrity bookings at such events. From at least in or about 2016, up to and including in or about May 2017, McFARLAND conducted a scheme to defraud individuals by inducing them to invest millions of dollars in Fyre Media. Through this scheme, McFARLAND caused losses to at least 80 victim-investors, totaling more than $24 million dollars.
In furtherance of the scheme, McFARLAND repeatedly made materially false statements to investors about Fyre Media’s revenue and income, and manipulated Fyre Media’s financial statements and supporting documentation to hide Fyre Media’s true financial condition. For example, McFARLAND represented to investors that Fyre Media had earned millions of dollars of revenue solely from talent bookings; a review of Fyre Media’s records showed that those numbers were significantly overstated. McFARLAND also provided falsified income statements to investors that purported to show that from approximately April 2016 to February 2017, Fyre Media had earned millions of dollars in income from talent bookings. In reality, Fyre Media’s income from talent bookings from approximately May 2016 to April 2017 was only $57,443. In addition, McFARLAND provided falsified documents to investors showing over 2,500 confirmed talent bookings in a single month when, in fact, there were only 60 confirmed talent bookings in the entire year.
McFARLAND repeatedly made misrepresentations to investors designed to overstate Fyre Media’s financial condition and stability. For example, McFARLAND told investors that a reputable venture capital firm (the “VC Firm”) had completed its due diligence process and had decided to invest in Fyre Media. To the contrary, a VC Firm employee communicated to McFARLAND that the VC Firm would not invest in Fyre Media without first completing its due diligence, which the VC Firm had not done due to McFARLAND’s failure to provide many of the requested Fyre Media documents.
In late 2016, McFARLAND established a subsidiary, Fyre Festival LLC, to hold a music festival called the “Fyre Festival” over two weekends in the Bahamas. McFARLAND made repeated misrepresentations to investors with respect to their investments in Fyre Festival LLC. McFARLAND overstated the Festival’s receivables that he used as collateral for numerous investments to cover Festival expenses. McFARLAND also secured numerous investments in Fyre Festival LLC by claiming that investors would have the rights to payouts from Festival event cancellation insurance policies when, in reality, no event cancellation insurance policies had been executed for the Festival. Ultimately, the Festival was canceled and widely deemed to have been a failure.
McFARLAND also repeatedly made materially false statements to investors about his own financial condition. For example, in order to induce several investors to make an investment in Fyre Media, McFARLAND provided an altered stock ownership statement to inflate the number of shares he purportedly owned in a publicly traded company to make it appear that McFARLAND could personally guarantee the investment. In addition, despite the fact that McFARLAND’s applications to two banks (“Bank-1” and “Bank-2”) for millions in personal loans had not been approved, McFARLAND misrepresented to investors that the monies from those bank loans could serve as collateral for their investments. On one occasion, McFARLAND sent an investor a snapshot of an email purporting to be from a Bank-1 banker (“Banker-1”) to McFARLAND approving a $3 million dollar loan. Not only had Banker-1 not sent that email, Bank-1 had not approved McFARLAND’s loan application.
McFarland also made materially false statements to certain of Fyre Media’s investors about Magnises, a credit card and private club for millennials that was founded and run by McFARLAND. McFARLAND told certain of Fyre Media’s investors that he had sold Magnises for approximately $40 million and made a profit of several million dollars personally from the sale, when in reality, McFARLAND had not sold Magnises. McFARLAND also falsely stated to certain of Fyre Media’s investors that specific individuals were the acquirers of Magnises, when in fact, they were not. McFarland also falsely stated to certain of Fyre Media’s investors that a group of acquiring partners were forming a new company to purchase Magnises, when in fact, no such group existed.
In or about April 2017, McFARLAND defrauded a ticket vendor (“Vendor-1”) by inducing Vendor-1 to pay $2 million for a block of advance tickets for future Festivals over the next three years. McFARLAND also provided Vendor-1 with a fraudulent income statement for Fyre Media that grossly inflated the Company’s revenue and income.
On March 6, 2018, McFARLAND pled guilty before Judge Buchwald to one count of wire fraud in connection with a scheme to defraud over 80 investors in Fyre Media and Fyre Festival LLC of over $24 million, and one count of wire fraud in connection with a scheme to defraud a ticket vendor for the Fyre Festival of $2 million, in the case captioned United States v. William McFarland, 17 Cr. 600 (NRB). In connection with that case, McFARLAND was on pretrial release from July 1, 2017, to June 12, 2018.
Subsequently, from late 2017 through March 2018, McFARLAND owned and operated NYC VIP Access, a company based in New York, New York. NYC VIP Access purported to be in the business of obtaining and selling for profit tickets to various exclusive events such as fashion galas, music festivals, and sporting events, including the following events, among others: the 2018 Met Gala, Burning Man 2018, Coachella 2018, the 2018 Grammy Awards, Super Bowl LII, and a Cleveland Cavaliers game and team dinner with Lebron James. McFARLAND, while on pretrial release, perpetrated a scheme to defraud attendees of the Fyre Festival, former customers of Magnises (another company operated by McFARLAND), and other customers by soliciting them to purchase tickets from NYC VIP Access to these exclusive events when, in fact, no such tickets existed.
In furtherance of the fraudulent ticket scheme and to conceal his involvement in NYC VIP Access, McFARLAND took steps to make NYC VIP Access appear as it if were controlled and operated by other individuals. For example, in soliciting ticket sales, McFARLAND used an email account in the name of a then-employee (“Employee-1”) and a fake employee (the “Fake Employee”) to communicate with customers. In addition, McFARLAND did not personally meet or speak with customers. Instead, at the direction of McFARLAND, Employee-1 met and spoke with customers to solicit ticket sales. McFARLAND also directed Employee-1 to sign the contracts between NYC VIP Access and the customers for the sham ticket sales.
McFARLAND also took steps to conceal his receipt of the proceeds from the scheme. For example, McFARLAND arranged for customer payments to be made by wire transfer, or through a payment processor, to bank accounts to which McFARLAND or his associates had access, including bank accounts belonging to Employee-1 and McFARLAND’s driver (the “Driver”). Alternatively, McFARLAND used mobile payment service accounts belonging to other NYC VIP Access employees to receive customers’ payments for tickets. Employee-1, the Driver, and other NYC VIP Access employees then provided the ticket sale proceeds to McFARLAND in cash. After McFARLAND induced customers to pay for the tickets, McFARLAND either did not provide tickets at all, or did not provide tickets as advertised. Altogether, McFARLAND obtained approximately $150,000 in fraudulent ticket sales from at least 30 customer-victims of NYC VIP Access.
In or about March 2018, McFARLAND provided a forged check in the name of Employee-1 to the Driver, which the Driver attempted to deposit into the Driver’s bank account and would have resulted in the unauthorized withdrawal of funds from Employee-1’s bank account.
On or about June 20, 2018, in an in-person interview with a federal law enforcement agent about his involvement in NYC VIP Access, McFARLAND falsely stated, among other things, that (i) McFARLAND did not think that he would defraud customers from his prior businesses, Magnises and Fyre Festival, when he solicited them to buy tickets for NYC VIP Access; and (ii) Employee-1 authorized McFARLAND to write a check from Employee-1’s bank account for $25,000 in the name of Employee-1 to the Driver for the Driver to deposit into the Driver’s bank account.
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McFARLAND, 26, of New York, New York, was sentenced to 6 years in prison, to be followed by 3 years of supervised release, and a $500 special assessment. Judge Buchwald also ordered McFARLAND to forfeit $26,191,306.28.
Mr. Berman praised the outstanding investigative work of the FBI’s New York Field Office, and thanked the U.S. Securities and Exchange Commission for its assistance.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United State Attorney Kristy J. Greenberg is in charge of the prosecution.