The short answer to this headline is: The Federal Trade Commission can investigate you for “deceptive tactics” and impose a fine on you that is so heavy that it will be suspended due to your inability to pay – as well as requiring you to refund all the money you received from Kickstarter backers.
This was in fact the FTC’s “first case involving crowdfunding,” and has a literary angle in that it involved a board game project based on the works of H.P. Lovecraft. “The Doom That Came To Atlantic City!” was described as “a light hearted Lovecraftian game of urban destruction,” and was started by “Erik Chevalier, also doing business as The Forking Path Co.” What’s more, this was no fraud involving a scam project with limited backing from a few deluded fans; rather, “1,246 backers pledged $122,874 to help bring this project to life,” as against an original $35,000 target.
All the same, Chevalier posted on July 31st, 2013, “as of this evening I’ve begun refunding backers.” Instead, though, according to the FTC, “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.” The game did eventually happen, thanks to Cryptozoic Entertainment and Renegade Game Studios, and won DieHard GameFAN‘s award for Board Game of the Year, 2014. Original backers received a copy at least.
The FTC has now imposed a settlement order, which Chevalier appears to have agreed to in lieu of a full prosecution. “The order imposes a $111,793.71 judgment that will be suspended due to Chevalier’s inability to pay. The full amount will become due immediately if he is found to have misrepresented his financial condition.” The FTC release further states that “the defendant has agreed to a settlement that prohibits him from deceptive representations related to any crowdfunding campaigns in the future and requires him to honor any stated refund policy.”
Kickstarter itself has come out behind the judgment. In a statement to the Washington Post, Kickstarter spokesperson David Gallagher said: “Creators who abuse our system and backers’ trust expose themselves to legal action.”
So at the very least, the many editors and publishers, and even writers, now turning to Kickstarter, Indiegogo, and other crowdfunding platforms to back their latest project had better be very careful what they promise and that they can deliver – or refund if they can’t. Though remember that not every crowdfunding platform is as scrupulous and well-managed as these two either. Caveat backer.