Federal Trade Commission Cracking Down on Crowdfunding

Federal Trade Commission Cracking Down on Crowdfunding

Kickstarter, GoFundMe, Indiegogo, HatchFund, the list of crowd sourcing websites goes on and on. If you have been on social media or the internet for that matter in the last few years, you have probably seen or heard about some sort of various crowd funding project.

The idea of crowd sourcing funding is simple; the creator puts the idea up on one of these websites and promises various rewards for different levels of donations. Some of these sites like Kickstarter require that the creator reach their goal in order to receive the money that has been pledged. Others, like Indiegogo, give a portion of the money pledge to the creator even if they don’t make their goal.

This has led to some rather large and successful crowd sourced things, such as Garden State 2 as well as the Veronica Mars Movie. It has also had some bizarre successes such as the creator who raised over $70,000 to make potato salad (Initially started as a joke, the creator ended up donating all the money that had been raised to feed the hungry).

In a perfect world, this seems like a fantastic way to put money into innovative new projects that you personally have a vested interest in. However, humans are inherently flawed and a significant number of successfully funded projects fail to deliver on their promises long after having taken the money.

This looks as it may be coming to an end however as the Federal Trade Commission has taken its first action involving the crowd funding market. The action they have taken is against Erik Chevalier who raised $122,000 to create a board game. Not only was the game not delivered, but the backers have not yet received their requested refunds. In fact, reports indicate that Chevalier spent the money on rent and travel rather than fulfilling the promises of the project. The FTC in the suit is enforcing his reimbursement of the funding raised.

This action makes a great move towards regulation of this currently unregulated industry, but will it be enough to begin ensuring deliverables from the creators?