In the first-ever case involving crowdfunding, the FTC has announced that it has settled charges against the creators of a board game funded through a Kickstarter.com campaign. Crowdfunding involves individuals and/or businesses funding a project or venture by raising funds from numerous people, often via dedicated online platforms. According to the FTC’s complaint, Erik Chevalier sought money from consumers to produce a board game called The Doom That Came to Atlantic City.
The FTC’s complaint also alleges that Mr. Chevalier represented in his Doom campaign on Kickstarter.com that if he raised $35,000, backers would get certain rewards, such as a copy of the game or specially designed pewter game figurines. He raised more than $122,000 from 1,246 backers, most of who pledged $75 or more in the hopes of getting the highly prized figurines. He represented in a number of updates that he was making progress on the game. But after 14 months, Mr. Chevalier announced that he was cancelling the project and refunding his backers’ money.
However, Mr. Chevalier did not provide the rewards he promised, nor did he provide refunds to his backers. In fact, the FTC’s complaint alleges that Mr. 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.
Under the settlement order, Mr. 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 Mr. Chevalier’s inability to pay.
When contacted about the FTC’s action, Mr. Chevalier said, “I worked on the project, tried to get it made it didn’t work out,” he said. “What I said online was honest.” The FTC disagrees, saying, “He spent a lot of that on his personal expenses. He used that money as a personal piggy bank.” The FTC says most crowdfunding projects are legitimate, but Mr. Chevalier’s case demonstrates that the popular investment tool has its risks. “Our creators have a great track record, and the Kickstarter community has helped bring so much great creative work to life,” a Kickstarter spokesman said. “In this case, when a project went off track, members of our community stepped in to make things right. It’s a powerful example of how Kickstarter is about so much more than raising money.”
This case represents the first enforcement action the FTC has brought against a crowdfunding campaign. Crowdfunding has become a lucrative business in recent years. In 2014, $529 million was pledged on Kickstarter alone. But the rise of the crowdfunding model has also led to new questions about how to protect consumers who donate through the platforms and are often promised rewards in return. At the very least, the FTC’s enforcement action is a sign that the FTC is willing to extend its consumer protection powers to the somewhat murky waters of crowdfunding. It will be interesting to see whether the FTC continues to target Kickstarter projects in the future, and what the settlement with Mr. Chevalier means for the longevity of Kickstarter.com.