Screwing backers of crowdfunded projects may no longer be as free from consequence as it used to. The Federal Trade Commission has (finally, some might say) decided to tackle a failed Kickstarter and hold the person behind it responsible (sort of) for walking away from a dead project with over $100,000 in backers' cash.
Erik Chevalier, d/b/a The Forking Path, hit Kickstarter with a plan for a boardgame featuring "Lovecraftian urban destruction" and a goal of $35,000. By the time the clock wound down, Chevalier was sitting on $123,000 of what would turn out to be mostly donations. That was June of 2012. By July of 2013, after numerous delays and long silences, Chevalier announced the project's demise. He also promised to start refunding backers. Apparently, only the first assertion was true. In fact, a lot of what was said to backers proved to be untrue. From the FTC complaint:
In an update issued on July 23, 2013, Defendant stated that the project was being cancelled because “the intention was to start a board game company with the Kickstarter funds” and that “[a]fter paying to form the company, for the miniature statues, moving back to Portland, getting software licenses and hiring artists to do things like rule book design and art conforming[,] the money was approaching a point of no return.”
In reality, Defendant never hired artists for the board game and instead used the consumers’ funds for miscellaneous personal equipment, rent for a personal residence, and licenses for a separate project.
More recently, Defendant promised consumers that he would provide an accounting of his expenses, but he has not done so. Consumers continue to file complaints regarding Defendant’s failure to provide the promised products and rewards, or refunds.
Eventually, after numerous complaints from the backers and the artistic creators of the game, another game developer stepped in and published the game and gave all backers a copy of the board game but not the other, highly-prized deliverables, such as the promised pewter figurines.
To date, Defendant has neither provided the promised reward deliverables nor refunded most of the consumers.
Chevalier's settlement agreement
with the FTC is mostly toothless. It concedes he doesn't have the funds to pay back the $112,000 he still owes backers, thus suspending this route of recourse. The other wording in the agreement simply orders him to not being a lying swindler while utilizing crowdfunding services. In other words, behave like a normal, decent human being. Why it takes a government agency to deliver this message is beyond me, especially when it could have ordered him to steer clear of these services entirely.
IT IS ORDERED that Defendant, Defendant's officers, agents, employees, and attorneys, and all others in active concert or participation with any of them who receive actual notice of this Order, whether acting directly or indirectly, in connection with any crowdfunding campaign, are permanently restrained and enjoined from misrepresenting or assisting others in misrepresenting, expressly or by implication:
A. the purposes for which funds raised from consumers will be used;
B. that by making a contribution, consumers will receive a specific good, service, or other reward deliverable;
C. the performance, efficacy, nature, or central characteristics of such good, service, or other reward deliverable; or
D. the qualifications or expertise of any person associated with the crowdfunding campaign.
IT IS ORDERED that Defendant, Defendant's officers, agents, employees, and attorneys, and all others in active concert or participation with any of them who receive actual notice ofthis Order, whether acting directly or indirectly, in connection with any crowdfunding campaign, are permanently restrained and enjoined from failing to honor any stated refund, cancellation, exchange, or repurchase policy.
Coupled with this are some more stringent stipulations, including the FTC's monitoring of Chevalier's crowdfunding-related activity for the next 18
years, as well as giving the agency permission to pounce on any assets it deems "hidden" for the purposes of repaying Kickstarter backers.
An additional layer of scrutiny for crowdfunding ventures is probably a good idea, but not every funded project that dies is necessarily the result of the formative entity taking the money and running. It will be tempting to believe this is true in every case, especially if leaning on the FTC proves more effective than relying on self-policing and crowdfunding platforms Terms of Service agreements. As it stands now, there aren't many effective legal routes to demanding refunds for undelivered projects, and that has proven to be a bit of a problem, albeit far less frequently than cautionary notes to potential backers would have you believe.
If the FTC is going to regulate this like any other "trade," the deterrents will have to be a bit stronger than the terms of this settlement. The agreement with Chevalier may ward off future fraudulent attempts by him and his company, but it doesn't seem likely to scare off others who see crowdfunding as a path to quick personal enrichment.