Man set­tles with FTC in crowd­fund­ing case

Los Angeles Times - - BUSINESS BEAT - By An­drew Khouri an­drew.khouri@la­times.com Twit­ter: @khourian­drew

In its first ac­tion in­volv­ing the multi­bil­lion-dollar crowd­fund­ing in­dus­try, the Fed­eral Trade Com­mis­sion charged that a man used money raised through Kick­starter for rent and other per­sonal ex­penses in­stead of pro­duc­ing the board game he promised.

The case is part of a wider FTC ef­fort to pro­tect con­sumers who are us­ing new fi­nan­cial tech­nol­ogy such as crowd­fund­ing, mo­bile pay­ments and vir­tual cur­ren­cies.

Crowd­fund­ing, which en­ables peo­ple to raise money on­line from many peo­ple, has grown sharply in re­cent years. In 2013, such plat­forms raised $5.1 bil­lion, the FTC said.

“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, but con­sumers should [be] able to trust their money will ac­tu­ally be spent on the project they funded,” Jes­sica Rich, direc­tor of the FTC’s Bureau of Con­sumer Pro­tec­tion, said in a state­ment.

In its first crowd­fund­ing case, an­nounced Thurs­day, the fed­eral agency said that Erik Che­va­lier raised more than $122,000 from 1,246 back­ers and promised in­vestors they would re­ceive re­wards, in­clud­ing the board game and pewter game fig­urines, if he reached his $35,000 fund­ing goal.

Che­va­lier, how­ever, never pro­duced “The Doom That Came to At­lantic City.” The FTC said that af­ter 14 months, Che­va­lier an­nounced he can­celed his project and promised to re- fund back­ers’ in­vest­ments.

Ac­cord­ing to the com­plaint filed in the case, Che­va­lier spent most of his in­vestors’ money not on the game but on rent, per­sonal equip­ment, li­censes for an­other project and mov­ing to Ore­gon.

“Few, if any,” back­ers have re­ceived a re­fund, the FTC al­leged.

Un­der a set­tle­ment reached in the case, Che­va­lier is barred from mak­ing de­cep­tive rep­re­sen­ta­tions re­lated to crowd­fund­ing cam­paigns and must honor re­fund po­lices.

The set­tle­ment also im- poses a $111,793.71 judg­ment against Che­va­lier, although it has been suspended be­cause of his in­abil­ity to pay, the FTC said.

Che­va­lier could not be reached for com­ment.

The FTC said that af­ter com­plaints about the Kick­starter cam­paign, an­other game de­vel­oper pub­lished “The Doom That Came to At­lantic City” and gave all in­vestors a copy, but it didn’t give them the promised pewter fig­urines.

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