FTC Cracks Down on Crowdfunding Schemes, Says Kickstarter Funds Spent on Rent

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 allows 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 game. The FTC said that after 14 months, Chevalier announced he canceled his project and promised to refund 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 imposes a $111,793.71 judgment against Chevalier, although it has been suspended because of his inability to pay, the FTC said.

Chevalier could not immediately be reached for comment.

The FTC said that following complaints about the Kickstarter campaign, another game developer published the game and gave all investors a copy, but didn’t give them the promised pewter figurines.