Feds take first action against a failed Kickstarter with $112K judgment

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**agnosto**

From:
http://arstechnica.com/tech-policy/2015/06/feds-take-first-action-against-a-failed-kickstarter-with-112k-judgment/

Since he's broke, no one will actually get any money but the judgement is a nice warning.

The Federal Trade Commission has taken its first-ever action over a crowdfunding project, finding that its creator used "deceptive tactics" by raising more than $122,000 to create a board game—and then spending the money on things like rent, moving to Oregon, and personal equipment.

Erik Chevalier, who has settled the case, raised the money from 1,246 backers. He promised he would produce a board game called The Doom That Came to Atlantic City, and the campaign came to a successful conclusion on June 6, 2012. According to the complaint (PDF), 85 percent of the backers had pledged $75 or more, the level required to get the pewter miniatures promised backers of the project.

He blew the original deadline of November 2012. Sporadic updates, still available on the project's Kickstarter page, were published between June 2012 and June 2013 explaining the delays and promised that the game was still in production.

On July 23, 2013, Chevalier canceled the project. “After paying to form the company, for the miniature statues, moving back to Portland, getting software licenses and hiring artists to do things like rule book design and art conforming[,] the money was approaching a point of no return," he explained. The post continued:

Suffice to say that I never gave up and always intended to get this project printed. My intentions have always been good and I've struggled with this greatly. I've spent a large amount of time pitching investors, begging banks for loans and seeking other sources of funding to fix this. Sadly I found no takers.
FTC lawyers claim that in reality, Chevalier never hired artists and "instead used the consumers’ funds for miscellaneous personal equipment, rent for a personal residence, and licenses for a separate project."

The settlement order imposes a $111,793.71 judgment, but it's 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 writes in today's statement on the case.

Chevalier is also barred from any "deceptive representations related to any crowdfunding campaigns in the future," and must honor any stated refund policies. (On Kickstarter, he said he hopes to "eventually refund everyone fully.")

The Doom That Came to Atlantic City was ultimately made available, just not by Chevalier. After the cancellation, the rights to the game and figurines went back to the designers, who were able to link up with Cryptozoic Games and get the game produced. Cryptozoic agreed to fulfill the orders of the Kickstarter backers at its own expense, and sent the games out in 2014.

Chevalier, whose business' name is The Forking Path Co., didn't respond to requests for comment sent through his website.

"Kickstarter creators have an incredible track record when it comes to following through on their promises," said Kickstarter spokesperson David Gallagher. "But creators who abuse our system and backers’ trust expose themselves to legal action. That another creator stepped in to produce this game and get it into the hands of backers is a testament to the goodwill and spirit of the Kickstarter community."

While this is the first time federal authorities have taken action over a crowdfunding campaign, consumer protection authorities in Washington state filed a lawsuit over an undelivered Kickstarter last year. The state attorney general sued Ed Nash and his company for failing to deliver its promised Asylum Bicycle Playing Cards, a "retro-horror themed playing card deck."

**Ratius**

Do Kickstarter themselves have any remit to go after dodgy projects or cancel them etc?
Or are they simply a "host" as it where? If the FTC hadnt have stepped in would the backers have gotten nothing in the end?

Im just trying to see how KS as "the host" handles these situations?

**privateer4hire**

Just saw this posted over on TMP.

KS itself still bares no responsibility and the $111,793.71 judgment is meaningless because the guy doesn't have to pay unless he's later found to have been lying about his inability to pay even that much.

Oh, and they essentially say that he can't make false claims in future if I read it correctly. as if it would be okay to ever make them.

**RiTides**

Still good to see he got caught - unfortunately, it's really easy to avoid his fate by just making a minimum "good faith effort" (or seeming to =/ )... he was just Really brazen about not using the money for the campaign towards trying to fulfill it.

**Dark Severance**

The judgement does more harm to the creator than I think people realize. Sure he could essentially stay unemployed or get a low paying job, but he is basically stuck in his position for indefinite period of time. I know it doesn't seem like a lot but wage garnishment is a pain in the ass to try to live a normal life with.

On the plus side Cryptozoic did deliver the product, so KS backers did receive their games, even though it wasn't from the initial creator. Currently though the license is now with Renegade Game Studio. There are still some initial CZE versions to sell before it gets completely rebranded and updated like they did with Gravwell.

**privateer4hire**

Wage garnishment is not mentioned. Nor is his ever getting a job again, assuming he's unemployed.

From my non-lawyer read, he's only in trouble if he didn't give FTC/court the proper disclosure of his finances as of FEB 2015.

Here's the proposed stipulated order posted on FTC's page: https://www.ftc.gov/system/files/documents/cases/150611chevalierstip.pdf

**Dark Severance**

privateer4hire wrote:
Wage garnishment is not mentioned. Nor is his ever getting a job again, assuming he's unemployed.

From my non-lawyer read, he's only in trouble if he didn't give FTC/court the proper disclosure of his finances as of FEB 2015.

Here's the proposed stipulated order posted on FTC's page: https://www.ftc.gov/system/files/documents/cases/150611chevalierstip.pdf

The garnishment won't happen as part of the initial judgement. However the Social Security Number can be used for collecting and reporting on any delinquent amount later. He is required to report yearly, as well as reporting if any changes in his financial situation occurs (ie: gets a job). Traditionally the Federal Government isn't shy about garnishment as soon as someone has a paying job to collect debt owed to it.

Since this has come out from what I understand its been a hectic day for everyone involved, including those that helped finally create the game. I have heard there will be a story on Good Morning America tomorrow. Lee Moyer was just interviewed by ABC and ICV2 is running a follow up tomorrow. Besides all the other places picking it up.

**agnosto**

And the federal ruling, toothless as it is, provides an open ing for civil litigation I believe. More importantly, it provides precedence for future court cases, including civil class-action suits.

**privateer4hire**

Fair enough. Still be interesting to see what's happened in this case/related in next 1-5 years.

**Dark Severance**

Supposedly this is reported the first step that the FTC will go after Kickstarter projects that steal backers' money.

"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," said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. "But consumers should be able to trust their money will actually be spent on the project they funded."

It also highlighted that "the Commission files a complaint when it has 'reason to believe' that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest." In other words, projects that fail to deliver because they genuinely can't fulfill difficult or impossible promises won't be on the hook with the FTC. However those that misappropriate funds on other things, that is completely a different story.

**Jehan-reznor**

Dark Severance wrote:
The judgement does more harm to the creator than I think people realize. Sure he could essentially stay unemployed or get a low paying job, but he is basically stuck in his position for indefinite period of time. I know it doesn't seem like a lot but wage garnishment is a pain in the ass to try to live a normal life with.

On the plus side Cryptozoic did deliver the product, so KS backers did receive their games, even though it wasn't from the initial creator. Currently though the license is now with Renegade Game Studio. There are still some initial CZE versions to sell before it gets completely rebranded and updated like they did with Gravwell.

Yeah so? It sets a precedent maybe others will be more weary of starting a kickstarter they do not plant to fulfill, or those with no ill intention do some more preparations on the pitfalls of a kickstarter instead of going in blind.

**privateer4hire**

I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

**Noir**

Jehan-reznor wrote:

Yeah so? It sets a precedent maybe others will be more weary of starting a kickstarter they do not plant to fulfill, or those with no ill intention do some more preparations on the pitfalls of a kickstarter instead of going in blind.

Because, it opens them to civil lawsuit, were you need far less proof. O.J. didn't kill his wife and friend in criminal court, but in civil court he end up losing for wrongful death.

**djones520**

While I'm pleased to see this action taken, this is why I don't support Kickstarter projects.

The banking loan system works to police this type of stuff. The lack of risk that entrepreneurs took with Kickstarter just didn't make me comfortable.

**Buttery Commissar**

I'm curious what this will mean for similar campaigns like Goblins: Alternate Realities (Creator used all the cash, left the backers, artist and IP owner high and dry).

**SilverMK2**

privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

I guess it depends if the movie and music industry get involved in shutting down people who are kickstarting films and music - Kickstarter will certainly get shut down for "facilitating" such a crime

**Grot 6**

privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

If it starts becoming an ongoing thing?

I see the .Gov getting into their trousers and paying attention to their finances, and.... tax revenue.

People are interested in their shenanigans, and how much does the Gov like munnies? MMMMMmmmmmm.......... Munnies.

**Sinful Hero**

Grot 6 wrote:
privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

If it starts becoming an ongoing thing?

I see the .Gov getting into their trousers and paying attention to their finances, and.... tax revenue.

People are interested in their shenanigans, and how much does the Gov like munnies? MMMMMmmmmmm.......... Munnies.

Where do you get the idea that people aren't paying their taxes?

**curran12**

Grot 6 wrote:
privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

If it starts becoming an ongoing thing?

I see the .Gov getting into their trousers and paying attention to their finances, and.... tax revenue.

People are interested in their shenanigans, and how much does the Gov like munnies? MMMMMmmmmmm.......... Munnies.

You are immensely out of touch if you somehow think this money is not taxed.

**TheAuldGrump**

Hmmm, I wonder if people with warehouses full of Ice Age Mammals have anything to fear....

The Auld Grump

**Jehan-reznor**

TheAuldGrump wrote:
Hmmm, I wonder if people with warehouses full of Ice Age Mammals have anything to fear....

The Auld Grump

Or defiance games?

**Grot 6**

Sinful Hero wrote:
Grot 6 wrote:
privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

If it starts becoming an ongoing thing?

I see the .Gov getting into their trousers and paying attention to their finances, and.... tax revenue.

People are interested in their shenanigans, and how much does the Gov like munnies? MMMMMmmmmmm.......... Munnies.

Where do you get the idea that people aren't paying their taxes?

Been involved in a nasty project that pulled that gak, that's where. AND... I'm talking Kickstarter themselves. As much as they want to act like a charity, they clearly are not covered under the charity tax umbrella.

To the other guy- Stop trying to be clever. You know how money works, don't be dense.

reference of what I'm talking about provided to you, not so-smart guy.

http://www.crowdcrux.com/kickstarter-indiegogo-tax-implications/

**Talizvar**

To expand on this ruling:
Historical explanation here:

Spoiler:

Could the law also find against a creator that uses a large portion of the money to invest in retail stock for sale of the "first half" of the promised product before full development and delivery has been fulfilled?

If they spend the money on ANYTHING that does not directly contribute to the promised kickstarter product to be developed, made and shipped would they be contrary to the law? I am thinking yes by this ruling.

**Sinful Hero**

Grot 6 wrote:
Sinful Hero wrote:
Grot 6 wrote:
privateer4hire wrote:
I wonder if there's any chance that KS itself will ever have to be party to any of this or do their 'caveat emptor' disclaimers leave them clear of all liability forever?

If it starts becoming an ongoing thing?

I see the .Gov getting into their trousers and paying attention to their finances, and.... tax revenue.

People are interested in their shenanigans, and how much does the Gov like munnies? MMMMMmmmmmm.......... Munnies.

Where do you get the idea that people aren't paying their taxes?

Been involved in a nasty project that pulled that gak, that's where. AND... I'm talking Kickstarter themselves. As much as they want to act like a charity, they clearly are not covered under the charity tax umbrella.

To the other guy- Stop trying to be clever. You know how money works, don't be dense.

reference of what I'm talking about provided to you, not so-smart guy.

http://www.crowdcrux.com/kickstarter-indiegogo-tax-implications/

Thanks for the link Grot 6. So basically it's up to the creators to file their taxes accordingly. And from what I took away from that article larger businesses are more likely to avoid that pitfall since they usually have accountants and such on payroll to dot the I'd and cross the T's.

**Grot 6**

Bingo.

And to top it off, there are more then enough shaky projects that don't even know how the world of taxes really works.

So for Indigogo/ Kickstarter, and the rest,

Caveat Emptor