Tags: Fyre | McFarland | released | bail

Fyre Festival Organizer Billy McFarland Released From Jail on $300,000 Bond

Billy McFarland leaves federal court after his arraignment in New York on Saturday, (AP Photo/Mary Altaffer)
Billy McFarland leaves federal court after his arraignment in New York on Saturday. (AP Photo/Mary Altaffer)

Saturday, 01 Jul 2017 05:14 PM

After spending the night at the Metropolitan Detention Center in Brooklyn, Fyre Media's Billy McFarland was released today on his own recognizance and the promise of a $300,000 bond. McFarland, who was arrested Friday night on suspicion of fraud and swindling investors out of millions, appeared this afternoon before U.S. Magistrate Judge Kevin Fox this afternoon at U.S. Court for the Southern District of New York.

Fox demanded the bond be secured by $50,000 in cash or personal property, and be co-signed by "two financially responsible persons," according to a Department of Justice spokeswoman. In addition, Fox has restricted McFarland's travel to the Southern and Eastern districts of New York and the state of New Jersey and is requiring him to submit to drug testing, with all conditions to be met by July 7.

Since McFarland, promoter of the ill-fated Fyre Festival music concert, was arrested on a complaint, a formal arraignment will occur later if he is indicted. He was expected to be released, since he is not being accused of a violent crime, and the bail is relatively modest, though the travel restriction underscores the seriousness of the accusations he's facing.

The 25-year-old entrepreneur was taken into custody at 6 p.m. Friday at his West 14th Street residence by federal agents. The arrest followed an investigation of under two months, which produced enough evidence to support criminal prosecution against the purveyor of the Fyre Media talent-booking app and the cancelled concert fest scheduled to take place in the Bahamas April 28 through May 7.

Related Fyre Festival Employees Reveal Details Behind the Disaster: 'It Was Incompetence on an Inconceivable Scale'

A seven-page FBI report, dated June 30, prompted a judge to issue an arrest warrant based on probable cause from information gathered from two investors and a former Fyre Media employee. Among the findings by agent Brandon Racz were that McFarland appeared to grossly inflate revenue from May 2016 through April 2017 in order to secure funds, suggesting "tens of millions of dollars" in bookings that were internally documented at below $60,000. Racz also found McFarland greatly exaggerated his personal net worth, claiming to own $2.56 million in stock holdings in what the FBI labels "the Fake Scottrade Statement," which Racz found to be worth closer to $1,500.

McFarland and Fyre appear to have generated at least $8 million on sales of 8,000 Fyre Fest tickets (priced at between several hundred dollars up to more than $10,000 apiece), but appear to have already depleted most, if not all, of those funds.

McFarland is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison. The case is being prosecuted by the Office's Complex Frauds and Cybercrime Unit, with assistant U.S. attorneys Kristy Greenberg and Dina McLeod in charge of the prosecution. Now that McFarland has been arrested, the government has 30 days to secure an indictment through a grand jury. After that, a federal jury trial is required to take place within 90 days (barring justifiable delays).

Racz refers in his affidavit to the investors as Victim-1 and Victim-2. The two who have filed civil suits against Fyre to date are EHL Funding's Ezra Birnbaum and private investor Oleg Itkin. When Victim-1 asked the Fyre Media founder "to send 'the latest on bookings,'" McFarland replied "$44 for March and April will be just under $50!," by which Racz documents that Victim-1 "understood McFarland to be referring to 44 million dollars and 50 million dollars." Comparing that to internal documents procured through a staffer Racz found that Fyre Media appears to have really had only 60 paid bookings that generated $57,443 from May 2016 through April 2017.

The internal documents procured by Racz through the former Fyre Media employee "responsible for overseeing talent relationships and bookings" does not show any artist being paid more than $45,000 for a single booking. In contrast to the 60 documented bookings, the fictive account, dubbed the "McFarland Fyre Media Booking Chart," claims 4,637 bookings - several of them exceeding $300,000 each, and many for amounts greater than $100,000." Victim-1 loaned Fyre $700,000 between February and April based on McFarland's earnings representations as well as the fake Scottrade statement, provided as a "personal guarantee."

The FBI concludes "McFarland altered his Scottrade statement" to inflate $1,499 to $2.56. Victim-2 relied on the same inflated statements - in addition to assurances of "artist bookings of up to $10 million per month of which Fyre Media received a 10 percent cut" - to extend $500,000 in "a series of investments" from late 2016 through April.

Agent Racz found "in many instances, the total booking amounts reflected in a single day [emphasis his] in the McFarland Fyre Media Booking Chart exceeded the total actual booking amounts over 15 months" in the chart provided by the Fyre Media employee. Acting United States Attorney for the Southern District of New York Joon Kim praised the investigative work of the FBI's New York field office, and thanked the Securities and Exchange Commission for their assistance.

In addition to the two investor lawsuits, filed in New York state court, McFarland, his business partner Ja Rule, Fyre Media or combinations thereof are named defendants in six federal class action lawsuits and one California class action (which are in the process of being evaluated for consolidation into a single federal class action suit). The class action suits seek over $100 million.

Stacey Richman, attorney for Ja Rule (born Jeffrey Atkins), confirmed reports that her client has not been arrested. She further said he has not been approached with any sort of government deal in exchange for information on McFarland. "There is no deal for Mr. Atkins to cut as I do not perceive him to have any potential criminal exposure. He is saddened by the arrest of Mr. McFarland as he believed and believes in him," Richman told Variety.

In addition, two state-filed vendor lawsuits - brought by Pennsylvania-based medical services firm EHS and Boston-based ticketing company Tablelist - claim more than $5 million in damages. The initial 11 lawsuits were all civil.

Some of the $8 million earned by McFarland and Fyre appears to have gone to partial repayment of Birnbaum (who says he loaned Fyre a total of $3 million); some was spent on fees and infrastructure and for the cancelled Fyre Festival; and a Bahamian boatload of money was poured into a glitzy Caribbean promotional video shoot that featured a yacht and a phalanx of fashion models.

Given Fyre's precarious financial state it is unclear how McFarland could repay investors. Some of the civil plaintiffs have set sights on deep-pocketed so-called "active participant" investors in Fyre Media (which do not include the victims in the FBI investigation).

Calls to McFarland's attorney were not returned at press time. A substitution of attorney form filed June 28 saw Scarsdale-based Michael Levine stepping in as McFarland's attorney in place of Hughes, Hubbard & Reed, itself a successor. A N.J.-based attorney that was at one point on record as representing Fyre Media has more recently declined comment as to whether he is on the case.

"McFarland promoted the Fyre Festival in part by claiming that it would bring a global audience together to share a life-changing experience," Racz wrote in his report.

© 2017 Thomson/Reuters. All rights reserved.

 
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After spending the night at the Metropolitan Detention Center in Brooklyn, Fyre Media's Billy McFarland was released today on his own recognizance and the promise of a $300,000 bond. McFarland, who was arrested Friday night on suspicion of fraud and swindling investors out...
Fyre, McFarland, released, bail
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Saturday, 01 Jul 2017 05:14 PM
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