As long as there have been humans, there have been humans committing fraud. And as long as there has been fraud, there have been victims of fraud. Like the over 1,200 funders who got behind Chevalier and his company, The Forking Path, when they launched their campaign for Ԕhe Doom That Came to Atlantic CityԠon Kickstarter in May 2012. The game was presented as a Monopoly like game where the players take on the roles of villains in a post-apocalyptic version of Atlantic City. Sounds like good fun, right!
Only, the game was never produced despite the fact that the company received a whopping 350% the amount of funding they were initially frauding…eeeh going for. They probably wanted to look modest as to not raise any suspicion 😉 $50 dollars would have gotten a pledger a copy of the board game, more money meant extra rewards. It’s easy to see why people fell for the fraud. $50 is not a lot of money at all for what seemed to be a real cool game and Kickstarter is a totally safe way to back new ideas. Or so you’d think.
In June 2013 Chevalier and Forking Path decided to abandon their efforts by never completing the game or fulfilling rewards to backers and (in his own words) Chevalier said, ԍy hope now is to eventually refund everyone fully.ԠThat sentence gave me a mental image of a guy on boat made of money far out at sea disappearing into the horizon. ‘So long suckers’, said Captain Fraudypants while hoisting his money sail.
Or not? Indeed not! The Federal Trade Commission (or ԆTCԩ under Section 5 of the Federal Trade Commission Act has the authority to bring civil causes against defendants who engage in any Եnfair or deceptive act or practiceԠin interstate commerce. Putting crowdfunding fraudsters on sites such as GoFundMe, Kickstarter and IndieGogo now officially in the sights of federal regulators.
Of course it’s not like Kickstarter didn’t do some ass covering of their own in their fundraising terms and conditions. They clearly state that project promoters either need to deliver the promised rewards or refund pledges made (doesn’t really help when all the money is gone). Obviously, Chevaliers took their rules mainly as loose guidelines when he breached the terms and announced that he was throwing in the towel, hoping to ‘refund the backers eventually’. Makes you wonder what this guy was thinking right?
What to do?
Still, now crowdfunding fraud has actually happened and the company that committed the fraud has been prosecuted, it has become a real thing. How, as an investor, can you protect yourself against crowdfrauding (see what I did there?)? Because, even though the FTC has your back, when there’s no money to be returned you’re still pretty screwed. Being screwed out of $50 for a board games is not nice and quite annoying, but being screwed out of $50,000 for a backing a new company or project is @#&^$ $&! and also @#&^$ $&@ and quite *$&@^$%.
Websites like CrowdCheck can be part of the solution here. CrowdCheck offers a weapon against potential fraud and helps investors make good investment decisions. Like any serious investor before putting his or her money somewhere, CrowdCheck does a due diligence and lets investors see the results of this due diligence in an easy-to-understand report. They’re basically doing the hard work for you and who doesn’t love that? It works for the entrepreneurs as well. By joining up with CrowdCheck they can show investors that they are serious with no hidden agenda. The entrepreneur has to go through a whole series of checks and a complicated disclosure process so that they know they meet all the legal requirements. Basically, CrowdCheck aims to make crowdfunding a whole lot safer.
It’s a shame that these kind of companies are needed, but it’s a great thing that they exist.
We are always looking for ways to make crowdfunding investing a more safe and transparent process. It is encouraging to see the industry developing, the FTC taking action and the industry developing more checks and balances.