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FTC Takes on Crowdfunding Fraud

FTC-logoWith Kickstarter and other crowdfunding platforms unwilling to take responsibility and do something about fraud and failed projects, the Federal Trade Commission has stepped in to do so.

While it’s a slap on the wrist, the FTC has announced through press release that it settled with Erik Chevalier over a failed board game Kickstarter project. Chevalier, as Forking Path Co., had his project The Doom That Came To Atlantic City! successfully funded in June 2012. The fundraising campaign raised $122,874 from 1,246 people, and the project was announced dead by Chevalier 14 months after in an update on the page.

The FTC charged Chevalier with not delivering his promised rewards or refund the backers. Instead, 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.”

photo-originalAs part of his settlement Chevalier can not make future misrepresentations about any crowdfunding campaigns. He also can not use any of the donor’s personal information in any way and must get rid of it. The final order also imposed a $111,793.71 judgment but that has been suspended due to Chevalier’s inability to pay. He’ll have to pay if it turns out his financial situation isn’t what he claimed. He’ll also have to report any crowdfunding activity he partakes for the next 18 months. So lots of slaps on the wrists and some bad press for Chevalier. Chevalier in the end never admitted or denied the charges. How that amount of fraud doesn’t qualify as grand larceny and involve jail time baffles my mind.
Now, if only the FTC would do something about crowdfunding platforms profiting off of the fraud. The FTC was asking if the platforms have any responsibility, to which the FTC attorneys responded that “crowdfunding platforms have a responsibility to act fairly and non-deceptively.” In other words as long as they say upfront you can get screwed, the platforms can profit off of fraud as long as they want.

While they were promised a lot, backers who pledged to get the game did eventually do so. Cryptozoic Entertainment stepped in to help with the production of the game. Even after the files were lost, they were recreated by Lee Moyer, one of the game’s creators. Cryptozoic tracked down sculpts and molds with help of Z-Man Games founder Zev Shlasinger. They eventually shipped 1200 Kickstarter backers a copy of the completed game. Cryptozoic paid for the production, but the company and creators didn’t receive any revenues from the backers. The backers didn’t get the promised extras like pewter miniatures, art prints, t-shirts and other promised items.

The FTC took on the case as part of their work to protect consumers when it comes to new and emerging financial technology also known as FinTech. The case was filed in the U.S. District Court for the District of Oregon, Portland Division.