The Federal Trade Commission has sued and settled with Erik Chevalier over his failed Kickstarter project, The Doom That Came to Atlantic City. He raised $122,874 from 1,246 backers for this Cthulhu-themed board game, promising them rewards like copies of the game and pewter figurines. But, as detailed in the FTC’s complaint, he spent the money on his rent and buying licenses for a different gaming project. Chevalier agreed to a $111,793.71 judgment, which is suspended because he unsurprisingly doesn’t have the money to pay it.
This is an important moment for crowdfunding. This settlement provides important guidance about when a failed project goes from regrettable to actionable. The FTC didn’t allege that the game itself was a scam, a fake project Chevalier had no intention of delivering. (There are plenty of those, and there was never much of a question that out-and-out scams are illegal.) Instead, the FTC alleged only that Chevalier promised to deliver rewards to backers, and didn’t.
But if the FTC were to start suing every Kickstarter project that doesn’t deliver its backer rewards, creators would be in big trouble. Kickstarter failures are routine, and many of those failures are regrettable without being culpable. If every creator whose project failed had to give backers a full refund, Kickstarter-style crowdfunding would collapse.The people who need Kickstarter to fund their projects are precisely the people who can’t afford to promise that they will deliver or else. Stores deliver or else; Kickstarter is not a store.
That’s why the other allegations in the FTC’s complaint are so significant. As the project gradually imploded, Chevalier first lied about his progress and then went silent. He told backers the game was “in production”; it wasn’t. He said he used the money for game-related expenses; he didn’t. He promised to provide a full accounting of expenses; he still hasn’t.
You might read these lies as establishing that The Doom That Came to Atlantic City was indeed a fraud from the start. Perhaps. But note that all of these misrepresentations came after he had the money in hand. So another interpretation is that the FTC was upset about how he misspent the money and especially about the bad communication. If this is right, then Chevalier would have been fine if he had delivered the rewards, or if he had spent the money in good faith and been honest about what went wrong.
Not coincidentally, this is what Kickstarter’s new-ish terms of use now say. Creators no longer make an absolute promise to deliver rewards to backers. Instead, they “owe their backers a high standard of effort, honest communication, and a dedication to bringing the project to life.” Creators who “work diligently and in good faith to bring the project to the best possible conclusion” will be allowed to walk away even if the project fails. Those who do not are in trouble.
This strikes me as a good standard. The ethical expectations of the situation are that creators will do their best – no more, and no less. Kickstarter’s terms of use get this. And I think the FTC does, too.