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FTC Takes First Action Against a Fraudulent Kickstarter Campaign

The action signals an effort by the agency to better police crowdfunding campaigns.

Kickstarter

It’s not okay to raise thousands of dollars through Kickstarter and keep the money without producing anything, the Federal Trade Commission said Thursday as it took its first consumer protection action on a crowdsourcing campaign.

The FTC case involved Erik Chevalier, an Oregon man who launched a business called The Forking Path. He launched a Kickstarter campaign in 2012 to produce a board game called “The Doom That Came to Atlantic City!” which had been designed by two prominent game artists. Chevalier promised that if he raised $35,000, backers would get rewards such as a copy of the game or pewter figures.

He ended up raising $122,000 from 1,246 backers, most of whom paid $75 or more so they could get rewards. Despite offering updates on production of the game, Chevalier announced about 14 months later that he was cancelling the project. Despite promising to refund the money, he didn’t do so. FTC investigators found that he spent most of the money on personal expenses, including a move to Oregon.

Most of the funders were eventually offered a free copy of the game, thanks to another publisher which took over the project.

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

The action is notable because it’s the first time the FTC had waded into the world of crowdsourcing campaigns and suggests that the agency is looking to do more to ensure that donors aren’t duped into giving money for fraudulent campaigns. Until now, policing of fraudulent crowdfunding campaigns have either been done by the sites themselves or by state attorneys general.

Under the FTC settlement, Chevalier was fined $111,793, but that judgment was suspended because he has shown he’s unable to pay it. He’s also barred from making any customer personal information public, misleading people in future crowdfunding campaigns or not honoring stated refund policies.

This article originally appeared on Recode.net.