Fyre Festival founder gets six-year prison sentence in fraud case

What is the difference between good marketing and fraud?

It began with an idea. What if an entrepreneur took his celebrity booking app to the next level? What if he used the connections that resulted from this app to put together a massive music festival?

Thus, the planning for the Fyre Festival began.

The idea was a good one. Get some great bands attended by key celebrities on a private island and people will pay thousands per ticket. Founders of the Fyre Festival marketed the event to investors as a luxury beach concert on a private island. Young people would pay a premium to head to the Caribbean and stay in high-end accommodations while enjoying lavish meals.

The pitch worked. Over 80 investors provided a minimum $24 million investment.

In reality, after paying thousands for tickets to attend the festival, concert-goers were greeted with a festival full of tents, cancelled concerts and cheese sandwiches. Investors were furious and demanded return of funds. The founder refused. After an investigation, the Federal Bureau of Investigation (FBI) reported not only was the event a failure, but that the founder of the Fyre Festival had used "fraudulent tactics" to bring in investors.

When does good marketing go over the line and become fraud? This case provides valuable lessons for entrepreneurs. Although entrepreneurs often need to exude confidence in their product to find success, a marketing pitch can cross the line into the criminal. Avoid this slippery slope with these two tips:

  • Ensure accuracy. In this case, in an effort to nullify skeptical investors the founder provided inaccurate financial statements to help bolster the supposed financial standing of his company. As such, the FBI used the falsification of financial documents to support criminal charges.
  • Be honest. Do not claim other investors have already agreed to be part of the deal unless they have. The FBI also used the fact that the founder of Fyre falsely claimed a large venture capital firm had agreed to invest to support the charges.

Accusations of fraudulent activity are a serious matter. A conviction for fraud can result in serious penalties.

How serious are the penalties for these types of fraud? These types of crime fall into a larger area of law referred to as white collar crimes. White collar crimes come with serious penalties, including monetary fines and potential imprisonment.

In this case, the founder was sentenced to a six-year prison sentence and forfeiture of over $26 million.

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