FTC Announces First Action Involving Crowdfunding

Last week, the FTC announced its first legal action involving crowdfunding. For those of you who don’t know, crowdfunding is the practice of raising money for a project by seeking contributions from a large number of people, usually through online platforms like Kickstarter or Indiegogo. In this case, the FTC alleged that a creator who sought money to produce a board game failed to deliver on his promises.

The creator represented that if he raised $35,000, backers would get certain rewards, such as a copy of the game and specially-designed game figurines. ​Even though the creator​ raised more than $122,000​, ​he announced that he was canceling the project and refunding his backers’ money.​ ​According to the FTC complaint, though, the creator failed to refund the money or provide any of the promised rewards. Instead, the FTC alleged that he spent most of the money on personal expenses such as rent, moving ​costs​, ​and ​personal equipment.

Under the settlement order, the creator is prohibited from making misrepresentations about any crowdfunding campaign and from failing to honor his refund policies. He is also barred from disclosing or otherwise benefiting from customers’ personal information, and failing to dispose of such information properly. The order imposes a judgment of almost $112,000 that will be suspended due to the creator’s inability to pay. (The full amount will become due immediately if he is found to have misrepresented his financial condition.)

This FTC announced that this case is part of the their ongoing work to protect consumers taking advantage of new and emerging financial technology. As technological advances expand the ways consumers can store, share, and spend money, the FTC is paying close attention to ensure that companies comply with the laws and keep their promises.