Crowdfunders, the FTC is Watching You

ftc is watching crowdfunders

When supporting a crowdfunding campaign, many have lingering doubts that their money is being used wisely.

It seems far too easy for a person to create a campaign on Kickstarter or Indiegogo and use that money on things other than the project.

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That’s exactly what happened in Lee Moyer and Keith Baker’s Kickstarter campaign, which was supposedly supporting the creation of their board game The Doom That Came to Atlantic City.

The campaign raised $122,874, and offered backers rewards like copies of the game or specially designed pewter game figurines. With 1,245 backers who mostly pledged $75 or more, it is no wonder such an uproar occurred when the game was not created after a year. After 14 months with no progress, the manufacturer Erik Chevalier, of Forking Path, announced the project was cancelled.

The Federal Trade Commission has now taken legal action against Chevalier for failing to refund consumers their money and for using the funds on personal expenses. This is the FTC’s first case involving crowdfunding, and could signal a future where crowdfunding campaigners are held accountable for misusing funds.

According to the report, Chevalier spent the money on moving to Oregon, paying for rent, personal equipment, and licenses for a different project.

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He has agreed to a settlement, which orders him to refund the money to the campaign backers when he is able to pay. According to the FTC:

“Under the settlement order, Chevalier is prohibited from making misrepresentations about any crowdfunding campaign and from failing to honor stated refund policies. He is also barred from disclosing or otherwise benefiting from customers’ personal information, and failing to dispose of such information properly. The order imposes a $111,793.71 judgment that will be suspended due to Chevalier’s inability to pay. The full amount will become due immediately if he is found to have misrepresented his financial condition.”

TechCrunch believes this could “give scammers pause and non-serious project builders even bigger cause for concern.”

While the FTC usually handles larger cases involving more than $100,000, its intervention in this project has demonstrated their eagerness to nip these issues in the bud.

Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, says:

“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. But consumers should be able to trust their money will actually be spent on the project they funded.”

Image: Kickstarter

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Joshua Sophy Joshua Sophy is the Editor for Small Business Trends and the Head of Content Partnerships. A journalist with 20 years of experience in traditional and online media, he is a member of the Society of Professional Journalists. He founded his own local newspaper, the Pottsville Free Press, covering his hometown.

5 Reactions
  1. There must be some type of protection for investors. After all, it is not like they want to just give their money away.

    • Aira,

      With investing comes a risk factor…

      The general crowdfunding idea is that you “give away” your money for a good cause. You could find hybrid versions of a crowdfunding service, with equity and funding with a stake of the company.

      I have funded 4 crowdfunded campaigns, and I look forward to the products in the future…

  2. For once I have to side with the FTC. A project involving over $100,000, even if it’s in chunks of $75, should be held to a higher standard and be subject to scrutiny. People need to deliver on their promises.

    • Robert,

      I will never take side with the FTC. This kind of federal so called “trade” commission shouldn’t exist at all, on a free market.

      Scammers will be dealt by a legal entity called the court system.

      One thing with a crowdfunding campaign is that if you back it, you can’t be sure that you will receive a finished product. I am involved in 4 campaigns at the moment, and I look forward to see the “daylight” of the products! 😉

      With that said, I have no clue if Erik Chevalier is a scammer or not… It is a bit ironic that the name of the board game is, The Doom That Came To Atlantic City!

  3. Hi Joshua,

    The FTC should have also enforced some sort of restraint so they were unable to ever attempt to fund a project using crowdfunding again. Maybe go as far as to say, they can never be company directors also.

    It is a risk for the backers and has now made it more difficult for genuine projects.

    Genuine projects should lay out a proposed plan for spending, just to help ease the mind of backers a little more.