Crowdsource Lawyer Explains Abandoned Project Legalities
You’ve come up with a million-dollar-idea. Eager to act, you draft and polish a mission statement, create a project outline, determine contribution awards, gather graphics, and voila! – 7 days later, you’re up and running on Kickstarter or GoFundMe.
And you do a great job – because within a few weeks, your project is funded! Time to start producing what you promised. Right? But what happens if you don’t deliver?
Collected Crowdsourced Funds, But Didn’t Deliver
Life doesn’t always work out as planned. Sometimes, good intentions become shelved aspirations. So what happens when you set up a Kickstarter, get funded, and then don’t follow through on promises to backers? Can you abscond with their money and no explanation?
In fact, the Federal Trade Commission recently announced its first “crowdsourced project abandonment bust”.
Who did the FTC investigate for possible crowdsource marketing violations?
Erik Chevalier, who came up with the idea for “The Doom That Came to Atlantic City,” which he described as a “Lovecraftian” board game about “urban destruction.”
What did Chevalier promise potential backers on his Kickstarter page?
According to Chevalier’s Kickstarter page, people who invested in the project, depending on their level of commitment, would receive either a t-shirt or “a copy of the game with pewter figurines made by well-known sculptor Paul Komoda.”
How much did Chevalier raise with his crowdsourcing efforts?
The board game developer’s initial goal was $35,000, which he surpassed by raising a little over $122,000 from more than 1,000 supporters.
Why did the FTC launch an investigation into Chevalier’s Kickstarter project?
According to a group of the game’s backers, Chevalier allegedly didn’t deliver on promises. As a result, a group of “The Doom’s” investors filed an FTC complaint against Chevalier to get their money back.
What did the FTC conclude in its first crowdfunding investigation?
Ultimately, the Federal Trade Commission found evidence that Chevalier may not have used backers’ funds to work on the game. According to the commission’s statement about the case (via NPR):
“He represented in a number of updates that he was making progress on the game. But after 14 months, Chevalier announced that he was cancelling the project and refunding his backers’ money.
“Despite Chevalier’s promises he did not provide the rewards, nor did he provide refunds to his backers. In fact, according to the FTC’s complaint, Chevalier spent most of the money on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment, and licenses for a different project.”
Did the FTC fine Chevalier for not using the money he raised on Kickstarter for the stated purpose?
The commission issued a $111,793.71 judgment against Chevalier but suspended it because of his “inability to pay.”
Besides the fine, what other penalties did the FTC impose?
In addition to the suspended fine, Chevalier is also barred from “making misrepresentations about any crowdfunding campaign” and he must honor any stated refund policies.
Speak With A Crowdsource Lawyer
NPR spoke to one of Chevalier’s backers who explained:
“I really don’t care about the money that is gone at this point, nor the game. I pledged $75 to get the [board game] figures, which I’m sure I’ll never see. Now I just want to see this guy put in prison.”
As a first offense, prison is probably a little drastic. But Chevalier’s run-in with the Federal Trade Commission should serve as a cautionary reminder that regulations govern the crowdsourcing process.
Before you start a project, make sure you understand what laws and regulations you must follow. If you don’t know them, consult with an Internet lawyer at Kelly Warner to ensure you have all your legal ducks in a row.