FTC Cracks Down on Kickstarter Fraud The FTC went after the makers of a board game who used crowd-funding money for personal expenses
Over the past years crowdfunding has really taken off, thanks to the internet’s power of bringing people together. Some of the most popular and well-known funding platforms are Kickstarter and Indiegogo; they offer people the ability to back creative projects of their own choosing, and follow their development process.
With over $1,770,000,000 spent by users like you and me in order to fund their favorite projects and almost 87,000 successfully completed projects on Kickstarter alone, crowdfunding seems like an exciting way to make fans feel like they are part of the creative team, all the while helping unlikely projects and products reach their funding goal – not to mention there are often cool goodies reserved for backers and people who chose to pre-order!
However, with a success rate of about 37%, it’s only normal to wonder what happens to the money that was donated to the projects that reached their goal, but didn’t make it in the end. Where does all that money go? Does it get refunded? Do fraudulent creators have anything to fear, apart from getting a bad reputation?
Well, it’s important to note that most crowdfunding platforms, like Kickstarter, do not offer refunds. All transactions take place between the backers and the project’s creator, which means that the backers should really look into each and every project very carefully, maybe even reach out to their creators, before making an educated guess on which ones seem like they are legitimate. Otherwise, they risk losing their money.
Since there is almost no protection against money-grabbing, fraudulent projects, crowdfunding would appear to be the perfect place for scam artists and con men, right? Well not anymore! In an unprecedented move, the Federal Trade Commission has taken legal action against a Kickstart project creator who failed to honor his promises!
The Lovecraftian horror board game that never came to life: The Doom that came to Atlantic City’
Artist Lee Moyer and game designer Keith Baker had been designing a new game board for more than 10 years! In ‘The Doom that came to Atlantic City’, players would be able to pick one of their favorite Lovecraftian universe horrors, and compete against the other players in taking over the world! In May 2012 they turned to Erik Chevalier’s company, ‘The Forking Path’, in order to bring it to life.
The game looked awesome, and Lovecraft horror fans all over the world were psyched! Who wouldn’t want to wreak chaos playing the Cthulhu piece? By the way, the little pieces would be sculpted by artist Paul Komoda, a fact that sweetened an already great deal even further! About 1,200 fans managed to collectively back the project with more than $120,000 – completely overtaking the funding goal of $35,000 that Erik Chevalier’s board game company had initially set!
Erik updated on the project’s status often and, for the next ~14 months, all seemed well. Suddenly, though, and without informing the game’s designers, he published this apologetic article, where he announced that the project was trashed and that his inexperience was to blame. He seemed willing to take the fall for this, however he never once explained exactly what had happened. Long-winded explanations of the vaguest variety were offered.
- ‘Since then rifts have formed and every error compounded the growing frustration, causing only more issues’
- ‘Unfortunately that wasn’t in the cards for a variety of reasons’
- ‘I’ve spent a large amount of time pitching investors, begging banks for loans and seeking other sources of funding to fix this. Sadly I found no takers’
However, Erik never mentioned what those issues and his reasons were, exactly. At this point, you can see how his backers might feel a little duped, right?
The Federal Trade Commission’s take on crowdfunding
In comes the FTC, here to save the day! They investigated the issue, and discovered that, even though Erik claimed that the money was running out ‘after paying to form the company, for the miniature statues, moving back to Portland, getting software licenses and hiring artists to do things like rule book design and art conforming’, and that he would refund the project’s backers in time, none of the above was actually true.
According to FTC, he spent most of the money on personal expenses, such as rent, moving to another city, licenses and stuff he needed for another of his projects! Quite a bold move, that one.
So the FTC issued a settlement on June 11th, under which Erik Chevalier will never misrepresent the purpose of a crowdfunding project, its rewards, its progress or the qualifications of the people who are associated with it, and must honour any stated refund policy. He was also fined about $111,000 that he isn’t able to pay, which got suspended.
So what was the point of FTC’s involvement in all this?
What was the point of FTC’s involvement though, since, in the end, Erik Chevalier can still start crowdfunding projects, and is not obligated to refund the people he scammed with ‘The Doom that came to Atlantic City’?
Wouldn’t it have been more reasonable to ban him from participating in crowdfunding projects entirely in the future, or even force him to return the money he took? The truth is that they probably couldn’t do anything more about it, from a legal perspective, as they would be treading in very murky waters, as there are no rules and laws to regulate crowdfunding at the moment.
Well, even though there will always be unsuccessful projects, con artists and scammers, even though customer protection is important, we should keep in mind that crowdfunding is essentially based on basic human good will between the creators and the consumers, and that this relationship should remain unregulated and free, as therein lies the magic of the entire process!
But what about ‘The Doom that came to Atlantic City’?
The game’s designers will see it come to life, apparently, as it seems to have been taken up by Cryptozoic Entertainment! We’re glad, because this project deserved a second chance – and thankfully, it got it!