Crowdfrauding

Online support gets a welcome look from the FTC

The Federal Trade Commission has delivered a punitive thwack to a man who raised $122,000 on Kickstarter to create a board game, then spent the money on himself.

It’s the first time the FTC has acted against the fledgling crowdfunding industry, and it should reassure donors on sites such as Kickstarter, Indiegogo and Go Fund Me that someone is watching out for them.

The FTC sued Erik Chevalier over a Kickstarter campaign that was supposed to fund development of a board game “The Doom That Came to Atlantic City.” More than 1,200 people contributed, and Mr. Chevalier collected more than $122,000. Fourteen months later, he told backers he was canceling the project and would refund their money. That didn’t happen, the FTC said, because Mr. Chevalier had used it to pay his rent, move to Oregon and buy assorted “personal equipment.”

The FTC and Mr. Chevalier reached a settlement that amounted to a slap on the wrist. The $111,793 judgment was suspended because of his inability to pay. However, the case brings to light the challenges looming as crowdfunding initiatives spread. They include not only fraud, but also murky issues of taxation.

While Mr. Chevalier’s donors got burned, Kickstarter has provided funding for worthwhile projects, including some in Pittsburgh. Chef Kevin Sousa collected $310,225 for his Superior Motors restaurant, set to open this summer in Braddock, and Toby Atticus Fraley raised $13,805 to install his innovative art, “Fraley’s Robot Repair,” at Pittsburgh International Airport this fall.

Presumably, Mr. Sousa and Mr. Fraley will deliver, but if they don’t, the FTC will be watching.