Victim of a crowdfunding scam? The FTC is here to help

Steven Loeb · June 11, 2015 · Short URL:

FTC takes first legal action against a fraudulent campaign, a $122K funded Kickstarter board game

I recently donated to my first ever Kickstarter, basically to help out a friend who was involved with the project. I didn't give much, only $15, but it still got me thinking: what would happen to that money if the person in charge of the project simply decided to use it for something else? What kind of recourse would I, or any of the other backer, have in that situation? 

Well, now we have an answer. If you don't use the money for what you say you will use it for, you're going to have to answer to the Federal Trade Commission.

The FTC announced on Thursday that, for the first time ever, it has taken legal action in regards to a crowdfunded campaign, in which the creator of the project spent the money pledged on himself rather than what it was originally designated for. 

Here's the backstory:  a man from Oregon named Erik Chevalier, who founded a business called The Forking Path Co., created a Kickstarter campaign to make a board game called “The Doom That Came to Atlantic City!” 

The campaign seemed legititmate, as the game had been created by two prominent board game artists. Plus, a number of other successful games had already come out of Kickstarter, including "Cards Against Humanity" and "Exploding Kittens."

The campaign raised a total of  $122,874 from 1,246 backers, but a little over a year later Chevalier revealed that the project was being cancelled. 

"My intentions have always been good and I've struggled with this greatly. I've spent a large amount of time pitching investors, begging banks for loans and seeking other sources of funding to fix this. Sadly I found no takers," Chevalier wrote.

He also promised to refund the money that had been pledged.

"My hope now is to eventually refund everyone fully. This puts all of the financial burden directly on my shoulders. Starting with those who've pre-ordered after the Kickstarter campaign through our webstore, then I'll begin working my way through the backer list, starting with those who funded at the highest levels. Unfortunately I can't give any type of schedule for the repayment as I left my job to do this project and must find work again," he wrote.

"I'll create a separate bank account to place anything beyond my basic costs of living. Every time that account has a decent amount saved into it I'll issue a payout to a portion of the backer list. I'll post updates with each payout to keep you all informed on the progress."

A week later he wrote another update, in which he claimed that he had already begun to refund the top backers of the project.

Of course, that does not seem to have been the case. In fact, he is being accused of using the money for his personal needs instead. 

"Despite Chevalier’s promises he did not provide the rewards, nor did he provide refunds to his backers. In fact, according to the FTC’s complaint, Chevalier spent most of the money on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment, and licenses for a different project," the FTC wrote.

Under the FTC settlement, Chevalier can no longer make any misrepresentations reagrding any future crowdfunding campaigns. He is also barred from disclosing any personal information of the people who donated to him. On top of that, he was also fined $111,793 by the FTC, but that was suspended because he can't pay it. 

The issue of what happens when the creator of a project doesn't fulfill their promise has always been a contentious one for any crowdfunding site, including Kickstarter.

In fact, last year Kickstarter decided to take itself out of the equation altogether, updating its terms of service to say that while legal action can be taken, it cannot be taken against Kickstarter, which sees itself as nothing more than a platform faciliating the transaction between the creator and backer.

"Anyone who backs a project is accepting the creator’s offer, and forming that contract,” the company stated. “Kickstarter is not a part of this contract — the contract is a direct legal agreement between creators and their backers."

I imagine that kind of language left many backers feeling out to sea if anything went wrong, but now at least they know that someone has their back.

“Many consumers enjoy the opportunity to take part in the development of a product or service through crowdfunding, and they generally know there’s some uncertainty involved in helping start something new,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in statement. “But consumers should able to trust their money will actually be spent on the project they funded.”

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