Contributing to a crowdfunding campaign is inherently risky. Even when the intentions of those responsible for the projects are honorable, a project can easily fall over, potentially leaving contributors out of pocket. But in its first legal action against a crowdfunded project, the US Federal Trade Commission (FTC) has gone after the project creator of a Kickstarter campaign who pocketed most of the money contributed by backers.
The Doom That Came To Atlantic City gained widespread attention for all the wrong reasons in 2013. It was to be Monopoly-style board game inspired by H.P. Lovecraft's Cthulhu Mythos, where players take on the role of powerful deities called Great Old Ones and wreak havoc on Atlantic City. Most game-related campaigns don't reach their funding goals, but with illustrator Lee Moyer and experienced game designer Keith Baker responsible for creating the game, the campaign flew past its US$35,000 goal and reached almost $123,000 in pledges by the time the campaign wound up on June 6, 2012.
But 14 months after the campaign ended, Erik Chevalier, who launched the campaign and established The Forking Path Co. to produce the game, told backers that the project was being canceled and he would be refunding their money. The problem is, he didn't. Instead, the FTC claims he spent the money on personal expenses, including rent, relocating himself to Oregon, personal equipment, and licenses for a different project. Baker and Moyer also denied being paid any money for the project.
In response to the legal action, Chevalier has agreed to a settlement prohibiting him "from deceptive representations related to any crowdfunding campaigns in the future" and requiring him to honor any publicly stated refund policy. Although the settlement order imposes a $111,793.71 judgment against Chevalier, this is suspended due to his inability to pay. If the FTC discovers he has misrepresented his financial circumstances, then the full amount would become due immediately.
"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. "But consumers should be able to trust their money will actually be spent on the project they funded."
The backers of The Doom That Came To Atlantic City would likely agree, and the episode didn't end up being a complete loss for them. Cryptozoic Entertainment ended up publishing the game and provided copies to all Kickstarter backers. However, those that backed higher pledge levels that offered rewards, such as custom art and limited edition pewter figurines, have ended up shelling out a significant amount of money for just the game – which was delivered by another company.
Still, the FTC action signals a willingness to take legal action in the often murky crowdfunding arena and will hopefully help rein in fraudulent crowdfunding campaigns – but, as is always the case when backing a crowdfunding campaign, caveat emptor.