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Feds highlight the perils of crowdfunding

As much as crowdfunding sites try to police campaigns to raise money, there is no shortage of tales of the ones that slipped through -- at least for a while.

The phony "Kobe Red - 100% Japanese Beer Fed Kobe Beef Jerky" project raised $120,000 before the deception was discovered. A fake campaign was set up to profit from a horrific car crash in California that claimed four lives. And numerous campaigns that have raised money (sometimes more than $1 million) have been allowed to continue despite having no evidence that the products could work.

On Thursday, the Federal Trade Commission took its first legal action against a crowdfunding campaign, accusing Erik Chevalier (DBA The Forking Path Co.) of raising $122,000 from 1,246 people to make the board game "The Doom That Came to Atlantic City" and delivering nothing. Chevalier said he would refund the money, but allegedly spent it on other things including moving expenses and rent.

"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," said Jessica Rich, Director of the FTC's Bureau of Consumer Protection. "But consumers should able to trust their money will actually be spent on the project they funded."

Chevalier settled the case brought by the FTC by agreeing to not make misrepresentations in future crowdfunding campaigns and to honor refund policies. A judgment of nearly $112,000 was suspended, the FTC said, because he can't pay it.

Before giving to a crowdfunding campaign, the Better Business Bureau recommends you:

  • Look into the campaign beyond just the information provided in the fundraising information.
  • Don't give more money than you can afford to lose.
  • If you have suspicions about a campaign, report them to the crowdfunding site.
  • Keep in mind that most contributions to crowdfunding campaigns are not tax deductible.
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