Man spends crowdfunding money on himself

An American entrepreneur used crowdfunding to raise more than $122,000 to produce a new board game. He failed to make a single game, and instead spent a huge chunk of the cash on rent, personal equipment, and the cost of moving house. His investors are unlikely to get a penny of their money back.

Eric Chevalier raised the money through Kickstarter in May 2012, for a game called The Doom That Came to Atlantic City (about monsters attacking the city). He originally only asked for $35,000, but investors were so impressed with the idea - and the game-makers and artists who had been involved in creating the game - that he raised far more cash than he intended to.

Chevalier issued a number of updates to his investors saying he was making progress, but after 14 months he suddenly announced that he was cancelling the project and refunding the money.

Unfortunately, none of the refunds were forthcoming. In fact the majority of the money had been spent by Chevalier on moving to Oregon, paying his rent, and buying licences for a different project altogether.
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The authorities

It's not the first time that investors in a crowdfunding project did not get what they were expecting. This time, however, the Federal Trade Commission stepped in and took legal action.

Unfortunately, the settlement they agreed was surprisingly ineffective. Chevalier isn't banned from crowdfunding again: he's just banned from lying during the process or failing to refund money - which you would hope people are banned from anyway.

In addition, although the settlement states that he owes his backers $111,793.71, he doesn't have to pay any of it, because he doesn't have any money. The FTC added optimistically: "The full amount will become due immediately if he is found to have misrepresented his financial condition."

Precedent?

It'll be a blow for the investors, but commentators are arguing that this case has set an important precedent. The ease of setting up crowd funding campaigns makes it appealing to those who want to use it for shady purposes - pretending to raise money for one thing and then using it for another.

The Chevalier case means that crowdfunding is now on the radar of the regulators, meaning that in future, victims of fraud can expect them to take action. The FTC said in a statement that this case was part of its ongoing work to protect people who are taking advantage of new financial technology. Jessica Rich, director of the bureau of consumer protection, said: "Consumers should be able to trust their money will actually be spent on the project they funded."

The only fly in the ointment is that given that Chevalier doesn't have to repay a penny to investors, it begs the question of whether this legal action constitutes any kind of protection for investors at all.

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