In the first crowdfunding case, the Federal Trade Commission has reached a settlement with Erik Chevalier, who started a Kickstarter campaign to create a board game called "The Doom That Came to Atlantic City."
Chevalier promised backers that if they helped fund his campaign, they would receive T-shirts or a copy of the game with pewter figurines made by well-known sculptor Paul Komoda. Chevalier was hoping to raise $35,000. More than 1,000 backers later, Chevalier received $122,000.
The FTC claims, however, that Chevalier never worked on the game with that money. In a press release the FTC says:
"He represented in a number of updates that he was making progress on the game. But after 14 months, Chevalier announced that he was cancelling the project and refunding his backers' money.
"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."
Under the agreement Chevalier reached with the FTC, he is obligated to honor any stated refund policies and he is "prohibited from making misrepresentations about any crowdfunding campaign." The agreement imposes a $111,793.71 judgement against him, but that has been suspended because of his "inability to pay."
"The enforcement action is a sign that the FTC is willing to extend its consumer protection powers to the somewhat murky waters of crowdfunding. Kickstarter uses an all or nothing type of system in which projects must reach a funding goal during a specific campaign period or they do not receive any of the pledges committed to it. Most campaigns fall short, according to the statistics from the company's Web site, and backers keep their money.
"But the 37 percent of projects successfully funded have raised more than $1.5 billion dollars, of which Kickstarter takes a modest cut. The "games" category has an even lower success rate, with only 32 percent of projects meeting funding goals. And projects like "The Doom That Came To Atlantic City" show that not all successful campaigns end up delivering what they promised.
"Because often times projects are delayed rather than cancelled, statistics on that category of projects are hard to determine. And that risk is almost inherent to funding passion projects on platforms like Kickstarter."