Federal Trade Commission Brings First Case Over a Kickstarter Project

The Federal Trade Commission has signaled its interest in policing deceptive claims made by those engaging in crowdfunding. On Wednesday, the federal agency settled its first case against a project creator on Kickstarter.

According to a complaint filed in Oregon federal court, Erik Chevalier and The Forking Path Co. initiated a campaign to raise money for a fantasy board game titled "The Doom That Came to Atlantic City." He told consumers they would receive a copy of the game and certain figurines if the campaign reached its funding goal of $35,000. Chevalier raised nearly four times that amount, over $122,000 from 1,246 backers.

In July 2013, he told his backers the project was canceled. He had previously acknowledged issues including patents and overseas manufacturing, but assured that the game was coming. Until he called it quits. "Every possible mistake was made, some due to my inexperience in board game publishing, others due to ego conflicts, legal issues and technical complications," he wrote. "I never set out to con anyone or to perpetrate a fraud, but I did walk into a situation that was beyond my abilities and for that I'm deeply sorry."

Some of his backers were upset. Law enforcement was contacted. Chevalier attempted to soothe nerves by promising refunds, but it didn't stop the FTC from investigating.

"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," states the complaint.

The FTC pursued him for violating a law on the dissemination of a false advertisement.

Although Chevalier hasn't admitted or denied the allegations, he has now consented to a permanent injunction that bars him from making misrepresentations about any crowdfunding campaign. He's also agreed to a monetary judgment in the amount of $111,793.71, but due to his inability to pay, the FTC has agreed to suspend the penalty unless he's dishonest about his financial situation.

“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,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection in a statement. “But consumers should able to trust their money will actually be spent on the project they funded.”

In a follow-up Q&A session on Twitter, the FTC tweeted that every case is "fact specific" and pointed to a blog post about how to avoid crowfunding frauds. Interestingly, the agency deflected a question about whether a crowdfunding platform itself could be held liable for failing to enforce its terms of service. 

As for what happened to The Doom That Came to Atlantic City, the FTC's complaint reveals, "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."