FTC Starts Regulating The Murky World Of Failed Crowdfunding Projects


FTC Starts Regulating The Murky World Of Failed Crowdfunding Projects

The Federal Trade Commission (FTC) this week finally got involved in the wonderful, and sometimes scammy, world of crowdfunding.

The agency went after Portland-based The Forking Path, Co., run by Erik Chevalier, who promised to make “The Doom That Came to Atlantic City,” a “lighthearted Lovecraftian game of urban destruction, for two to four players.” The company raised $122,874, on popular platform Kickstarter, in exchange for advance copies of the game, pewter figurines, T-shirts and special crediting in the game’s rule book.

Yet over a year later, the company announced that it would no longer be able to produce the game. Chevalier said he would return the collected money to his backers, yet he did not.

The FTC announced Thursday that the unscrupulous crowdfunder instead used the board-game funds “on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment, and licenses for a different project.”

The agency announced a settlement with the company: Chevalier will have to return $111,793.71 to his online donors.

Chevalier has agreed to the settlement without admitting guilt but says he cannot afford to pay at this time.

While Kickstarter’s policies put the onus for determining a project’s authenticity on its users, the FTC feels compelled to intervene.

The move comes after a 2013 initiative by Kickstarter to step in and ban a project that promised to convert pricey Kobe beef to beef jerky after online Reddit commentators raised questions about its legitimacy. The company also took action against a Montreal project that raised over $350,000 to produce a machine to induce lucid dreaming. In both cases, Kickstarter ensured that funders got their dollars back.

Yet the FTC still feels this isn't enough. Kickstarter's own policies make no promises of policing its marketplace

Kickstarter does not guarantee projects or investigate a creator's ability to complete their project. On Kickstarter, backers (you!) ultimately decide the validity and worthiness of a project by whether they decide to fund it.

Kickstarter does warn companies that if they “unable to satisfy the terms of this agreement [they] may be subject to legal action by backers.”

It seems as though they may also be subject to action by the FTC. Given the regulator is always late to the game, expect a wave of actions as the agency audits cases and complaints it has received.

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