When a Shitty Kickstarter Becomes an Illegal Kickstarter
The FTC cracked down on its first ever crowdfunding case, but there are still lots of ways you can lose your money on the site.
Image: Nathan Gibbs/Flickr
Here's a familiar tale: a sketchy Kickstarter project promises an exciting new product, raises thousands of dollars, tanks, and never actually delivers on the goods. But last week, for the first time ever, that well-worn story came to a different ending.
The Federal Trade Commission took legal action against a crowdfunder last week, requiring him to pay back the money he had raised in its first ever crowdfunding case. The case involved a board game called The Doom That Came to Atlantic City. The Doom was kind of a dark spin on Monopoly, featuring gargoyle player pieces and incorporating lore from horror writer H.P. Lovecraft's canon. It had been in development for more than a decade before the game creators finally found a board game company called Forking Path that agreed to pick it up and raise the funds needed to make it a reality.
Between May and June of 2012, Forking Path owner Erik Chevalier successfully raised more than $100,000 on Kickstarter to make the game. But over a year later, without shipping any of the promised rewards, he announced the whole project had been killed.
Chevalier said the costs of trying to get the game off the ground ate up the money raised, but the FTC says in reality, he just kept all the money for himself. Chevalier agreed to a settlement order to pay $111,793.71, which the FTC would have used to issue refunds, but the judgement was suspended because Chevalier is broke, which doesn't make for a very satisfying ending to the story.
Still, it marked the first time the FTC had taken action against a shady crowdfunding campaign and served as an example to other would-be scammers that just because you're using Kickstarter, doesn't mean you can rip people off. But there are a lot of sketchy Kickstarters and IndieGoGo campaigns out there, so why has the agency only cracked down on one little board game?
Sandhya Brown, the assistant director in the financial practices department at the FTC, told me even if a crowdfunding campaign is sketchy, or lame, or the product ends up being really crappy, unless the creator intentionally misleads the backers, it's not illegal.
"I'd hate to say it doesn't count, but it would be a tougher call," Brown said over the phone. "The core of what would concern us is the extent to which a crowdfunder is making promises that they're not delivering on."
Brown said that could be anything from lying about how the funds raised are going to be used to lying about what the rewards will be for certain levels. In the case of The Doom, the FTC alleges Chevalier lied about pretty much everything.
"There is some additional room for mischief."
Kevin Thompson was one of the original backers of The Doom on Kickstarter, contributing $150, which was supposed to earn him a copy of the game, pewter game pieces, and a T-shirt. When Chevalier announced the game wasn't going to be made, and the original creators seemed as baffled as anyone, Thompson said things started to smell fishy.
He contacted the FTC, as well as local State Attorney's office in Oregon, where Chevalier had supposedly set up shop. He reached out to local media and rallied other backers to report the project, too. Technically, he could have sued Chevalier too, as other backers have done in the past, though Thompson didn't go that far.
"We raised a lot of Cain about it," Thompson told me in a phone interview. "It's frustrating. For me $150 is not a big deal, but as far as I'm concerned he scammed us. It was just a bold-faced lie."
Thompson eventually got his game free of charge from Cryptozoic, a small game company that stepped in to make the game after seeing what had happened. But the whole thing kind of soured him on crowdfunding, he told me. Thompson backed a few more projects but said he hasn't contributed to any Kickstarters in more than a year, because of his experience with The Doom.
Even with the FTC cracking down on crowdfunding, the still-nascent market is rife with opportunities to lose money. If you back a project and the creator can't deliver, it doesn't always mean the FTC can step in.
"There can be situations in which someone makes good faith attempts to deliver on something and can't," Brown said.
And that does happen. Sometimes the project creators are able to issue refunds, or partial refunds, but other times the backers are just SOL. This is partly because Kickstarter occupies a kind of unique space in the market: it's not a store, as the company has so adamantly made clear, but it often feels like one.
"There are three common types of value exchange we're all familiar with today: commerce, philanthropy, and investment," Justin Kazmark, a Kickstarter spokesperson told me over the phone. "Kickstarter can sometimes feel like each of them. But it's something entirely new."
Kazmark told me Kickstarter tries to make it clear to backers what's at stake, and that sometimes projects will fail, through posts on the site and little alerts that appear during the check-out process when contributing money. But when the public focus is so often on big-name success stories that have no trouble delivering on the promises made, it's easy to assume that every project that meets its funding goal will follow through.
"There is a little bit of wiggle room with Kickstarter because you're not buying a product straight out, you're investing in an idea," Ryan Calo, an assistant professor of law at the University of Washington who specializes in digital commerce, told me over the phone. "There is some additional room for mischief."
But Calo said he didn't think crowdfunding was significantly more susceptible to bad players than any other marketplace. He told me this case was the latest example of the FTC flexing its muscles to show that just because we have new technology and ways of conducting business doesn't mean the same rules don't apply.
"No matter what you are, if you lie to consumers in a material way, the FTC is going to come after you," Calo said. "It's not just about people making misleading claims about weight loss drugs anymore."