FTC Announces First Consent Order on Misrepresentation in Crowdsourcing
The Federal Trade Commission (“FTC”) announced today that it has entered into a proposed consent orderagainst the founder of a failed Kickstarter project, marking the first time that the agency has taken a consumer protection action in the rapidly-emerging field of crowdsourcing. According to the complaint, the defendant, Erik Chevalier misused money raised through Kickstarter for personal expenses despite promises to use this money to develop a board game, or otherwise to return the contributions. While State Attorneys General have brought similar enforcement actions in the past against misrepresentations in crowdsourcing campaigns, this action breaks new ground for the FTC as part of its self-described efforts to “protect consumers taking advantage of new and emerging financial technology.”
Kickstarter provides a platform for aspiring creators to raise funds for a project directly from backers. In exchange for a “pledge,” a backer is generally entitled to a “reward,” often a finished version of the product or service being created. To date, over 8.8 million people have pledged more than 1.8 billion dollars through Kickstarter.
Mr. Chevalier’s campaign began in May 2012 when he pitched the idea of a Monopoly-like board game taking place in Atlantic City, where players take the role of H.P. Lovecraft’s Great Old Ones laying waste to the city. The idea quickly garnered attention from the internet, raising $122,874, almost four times the original funding goal. Backers were promised a copy of the completed board game, and those who pledged more were promised exclusive pewter figurines that could be used as game pieces. However, the project quickly ran into significant delays, and in June 2013, Mr. Chevalier announced that the project had been cancelled because the majority of the money had already been spent on game development with no end in sight. He also posted on Kickstarter that: “My hope is . to eventually refund everyone in full.”
Yet according to the FTC complaint, Erik Chevalier had actually used these funds for “miscellaneous personal equipment, rent for a personal residence, and licenses for a separate project,” contrary to his representations to consumers. While the proposed consent order does not admit fault, Mr. Chevalier agreed to a judgment of $111,794 (suspended due to an inability to pay); a prohibition against using, disclosing, or benefiting from customer information obtained through the fundraising campaign; a promise to refrain from making misrepresentations to consumers in future projects, and an ongoing duty for compliance reporting and record keeping for the next 18 years.