Fyre Festival was Buried Under Millions in Debt Before it Even Began
In the weeks before the Fyre Festival, organizers borrowed as much as $7 million in a last-minute bid to fund the doomed Bahamas music showcase, according to documents reviewed by Bloomberg News.
While recriminations and lawsuits multiply over the event’s now-infamous collapse, almost $1 million is still unaccounted for, and it’s unclear exactly how the rest was spent. Meanwhile, there’s the open question of whether thousands of ticket-holders will get refunds, or if employees of the startup behind the festival, Fyre Media Inc., will be fully paid.
The first wave of litigation, including a $100 million class action, came from vendors and attendees of the event that was to begin late last month. Now come demands from backers looking to recoup their investment—funding that in one case was directly connected to how much attendees spent on such extras as tours, booze, and “upgrades.”
Fyre Festival organizers took out a $3 million loan from a New York firm run by Ezra Birnbaum. Listed as a “member” of EHL Funding LLC, Birnbaum is now suing the festival’s organizers for defaulting. A second loan, for as much as $4 million, was tied to Carola Jain, the wife of prominent Wall Street executive Bob Jain, co-chief investment officer of the $35 billion hedge fund Millennium Management.
Birnbaum’s loan was to be repaid with money Fyre received from festival-related purchases, such as tickets and funds added to electronic wristbands meant for digital payments. Fyre was to fork over at least 40 percent of what it received by credit card, wristbands, and other electronic payments, according to a copy of the promissory note. Around the time organizers took out the loan from Birnbaum, himself tied to a now-settled U.S. Securities and Exchange Commission fraud suit, 1 ticket-holders began receiving emails encouraging them to put hundreds of dollars on their “FyreBands” to use for buying items and services such as extra beach tours and boat rentals. The festival received more than $700,000 from festival-goers for use via the wristbands–funds that were never repaid to Birnbaum, according to his complaint.
In theory, the odd arrangement kind of made sense. The Fyre Festival was advertised as a luxe vacation in the tropics, an exotic music festival with villas, yachts, fancy food, and celebrities on Great Exuma island, so there should have been plenty of ticket sales and VIP dollars to repay the loan. But guests didn’t arrive at the promised fantasy island. They described a lack of facilities, poor lighting, and inadequate accommodations. The gourmet meals were sandwiches and pasta salad, and the posh housing was glorified disaster relief tents. Many attendees were stranded through the night on the unfinished, unlit site, or crammed into an airport terminal to wait for a flight out.
In short, ticket holders scrounging for food, shelter, and a way off the island weren’t spending the kind of money on extras organizers needed to pay back Birnbaum.
Despite its now permanent association with the Bahamas disaster—which Slate magazine called the worst festival failure since Altamont in 1969—what Fyre Media Inc. actually does is makes an app. Founded in 2015 by musician Ja Rule—real name: Jeffrey Atkins—and his business partner Billy McFarland, Fyre held the festival as a side project to hype its brand and the app. That primary product is a platform to book talent for concerts, clubs, or parties. Current and former staff said McFarland gave them the impression the app was well funded, even attracting the interest of media giant Comcast Corp.
But as the festival meant to introduce the Fyre brand approached, the company was already taking on substantial debt.
On April 10, less than three weeks before the event, EHL Funding made a multimillion-dollar loan to fund the Fyre Festival, according to a copy of the promissory note filed in connection with a lawsuit. EHL shares a Manhattan address with Birnbaum, who identifies himself as a “member” of the business in a signed verification included in the lawsuit. EHL also is suing Atkins (Ja Rule) and Robert Nemeth, managing director and head of research at Perkins Fund Marketing, a Southport, Conn.-based broker-dealer, who guaranteed the loan, according to court papers and filings made under the Uniform Commercial Code.
The interest amounted to $600,000 over three months, but only if Fyre met a trio of stipulations under the agreement. It needed to make a payment of $500,000 within 16 days, make each subsequent payment on time, and raise the company’s valuation to more than $75 million. If any of these terms weren’t met, interest charges would total $900,000, a penalty that would make for an effective annualized rate of 120 percent. Neither Birnbaum nor an attorney for EHL replied to requests for comment.
Read the full article at: https://www.bloomberg.com/news/articles/2017-05-15/fyre-festival-was-buried-under-millions-in-debt-before-it-even-began