In the agency’s first case involving crowdfunding, the Federal Trade Commission filed suit against Erik Chevalier for raising money through a Kickstarter campaign ostensibly to produce a board game—only to spend the money on himself.
Chevalier—doing business as The Forking Path Co.—requested contributions on Kickstarter to produce The Doom That Came to Atlantic City, a board game created by two prominent game artists. In his appeal, Chevalier represented that if he raised $35,000, contributors would receive rewards like a copy of the game or specially designed game figurines, the FTC said.
The Kickstarter campaign raised more than $122,000 from 1,246 contributors, with most pledging $75 or more. Chevalier provided multiple updates on the project, stating that he was making progress. But 14 months later, he announced that the project was cancelled and he was refunding contributors’ money.
However, the agency accused Chevalier of not only failing to refund the money as promised, but also spending it on personal expenses, such as rent, personal equipment, licenses for a different project, and the cost of moving to Oregon.
The parties reached a deal prohibiting the defendant from making deceptive representations related to crowdfunding campaigns in the future. Specifically, Chevalier may not deceive consumers about whether they will receive a deliverable in exchange for a contribution, and he must disclose the purpose for which funds raised from a crowdfunding campaign will be used and any facts material to a consumer’s decision about whether to contribute to a crowdfunding campaign.
Chevalier is also required to honor any stated refund policy and is prohibited from disclosing or benefiting from contributors’ personal information, which he must promptly delete. A judgment of $111,793.71 was suspended due to his inability to pay.
To read the complaint and proposed stipulated consent order in FTC v. Chevalier, click here.
Why it matters: The agency’s first crowdfunding case demonstrates the FTC’s efforts in the new and emerging financial technology, or FinTech. “As technological advances expand the ways consumers can store, share, and spend money, the FTC is working to keep consumers protected while encouraging innovation for consumers’ benefit,” the agency said in a statement about the case. In a blog post, the FTC suggested two tips for businesses that are planning a crowdfunding campaign: keep your promises and use the money raised only for the purpose represented.