In a move that could have widespread implications for the crowdfunding industry, the Federal Trade Commision announced today that it has taken on its first case involving a crowdfunding platform, and settled with a Kickstarter project that failed to deliver on its promises.
The project, a board game called The Doom That Came To Atlantic City, was launched in May 2012 by Erik Chevalier and brought in nearly $123,000 from 1,246 backers by the time the campaign drew to a close. Despite surpassing the original goal of $35,000, the game wound up being cancelled 14 months later, during which time Chevalier, who was supposed to produce the game and was doing business as The Forking Path Co., failed to provide any of the promised rewards.
As the FTC explained in its news release, Chevalier promised at the cancellation to refund his backers' money, but failed to deliver on that promise as well. "In fact, according to the FTC's complaint," the agency says in its statement, "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."
In the same release, the director of the FTC's Bureau of Consumer Protection, Jessica Rich, said that "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," Rich added.
In addition to a suspended judgment of $111,793 due to Chevalier's inability to pay, the settlement bars Chevalier from "disclosing or otherwise benefiting from customers' personal information, and failing to dispose of such information properly," and prohibits him from "making misrepresentations about any crowdfunding campaign and from failing to honor stated refund policies."
As The Washington Post notes, another company did eventually take over the game and provided a free copy to the backers who funded the project.