FTC Tackles First Kickstarter Case, Settles Crowdfunding Action

The first case brought by the FTC involving crowdfunding reached a conclusion June 11th with a settlement. The defendant Eric Chevalier raised over $122,000 via Kickstarter to ostensibly produce a board game but instead used most of the funds for personal expenses. The FTC’s complaint charged that the defendant “participated in deceptive acts or practices in violation of Section 5(a) of the FTC Act.” Under the terms of the settlement, Chevalier will have to pay $111,793.71 if he is found to have lied about his current financial condition, but until that time the monetary judgment is suspended due to his stated inability to pay. He must refrain from ever making any misrepresentations related to crowdfunding campaigns.

The public should applaud the FTC for policing the burgeoning crowdfunding marketplace; however, the terms of the settlement seem like a slap on the wrist considering the fact that the 1246 victims lost an average of $1000 each. While the total amount lost pales in comparison to the amounts lost by banks in the 2008 financial meltdown or in the Madoff fraud case, the fact that the regulatory landscape surrounding crowdfunding is still arguably in the “wild west” phase of development may have necessitated harsher penalties to send a stronger deterrent message.

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