First fraud action against Kickstarter crowdfunding project - #crowdfunding


Washington Attorney General Robert Ferguson has brought an action against a Tennessee company that allegedly failed to deliver the products that were promised to backers of the company’s crowdfunding campaign on Kickstarter.  (Washington v. Altius Management LLC, Wash. Super. Ct., No. 14-2-12425-SEA, April 30, 2014).

The company Altius Management LLC and its president raised $25,146 from 810 backers for a line of playing cards and then allegedly failed to  deliver the promised product or to provide a refund to the backers, which the Attorney General asserts constitutes unfair or deceptive acts in trade or commerce under the Washington State’s Consumer Protection Act.  The AG is seeking to collect $1.62 million from the company, which is a $2,000 civil penalty for each of the 810 violations based on the total number of backers; it is worthy of note that only 31 of the backers live in the state.

There still remains a lot of confusion in the industry regarding whether people who contribute to a campaign in exchange for a perk are investors or purchasers, and the thrust of these types of actions will be to make it clear that the funders of perk-based campaigns on Kickstarter, Indiegogo and like sites, are purchasers worthy of the protection of consumer fraud statutes.  These actions are meant to deter nefarious entities from running campaigns and not delivering  the promised perk.

Some may think that this could send a chill down the spine of would-be project promoters who have no intent to defraud but may simply face the fact that projects can fail despite the best of intentions.  However, the fact that the funders’ money does not pass to a project unless a minimum designated amount is pledged provides the opportunity for a reality check --  project promoters need to take that figure seriously, they need to do the proper financial research to ensure that the minimum amount they raise in the campaign will indeed be enough for them to deliver the promised goods.  

We are likely to see more actions like this across many states, and indeed given that a campaign can be funded from people in all 50 states, it is within the realm of possibility that the company associated with a campaign gone wrong may be sued in more than one state.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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