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May 7th, 2014
Law Catching Up To Kickstarter
In what is, to our knowledge, the first enforcement action against a company which raised Kickstarter money and then failed to deliver any of the promised rewards, the Washington State attorney general announced on May 5, 2014 that it had filed a complaint for consumer fraud against Edward Polchlepek and his company Altius Management. The defendants raised over $25,000 from over 800 contributors for a playing card game (and other rewards) which was to be delivered in December, 2012. Nothing was ever delivered to the Kickstarter contributors.
Potential damages are over $1.6 million (at a fraud penalty of $2,000 per consumer).
There have been a number of instances where contributors to crowdsourced funding on a donation model have not received promised rewards. The Kickstarter website warns that it is not responsible for delivery of promised benefits, and to our knowledge, to date those who have complained have been out of luck. In one example, in 2012, a creator of a new board game raised over $122,000 (with a $35,000 goal) in order to fund the creation of the board game. Instead, he used the money to move to Oregon. When the backers of the Kickstarter campaign complained to the Oregon Attorney General, however, the Oregon Attorney General declined to press fraud charges.
As the law involving crowdfunding develops, it becomes clear that donation model crowdfunding campaigns have their risks. People in companies seeking online funds for their projects need to be aware of these risks, and to be sure that their campaigns disclose the possibility that benefits may not be forthcoming, or, more palatably, delayed, and then to follow up with contributors if delays occur to keep them updated about new delivery dates and the reasons for the delays. As regulators take a closer look at crowdfunding, raising it to fund a project and then paying for personal expenses is becoming increasingly risky.
If you have any questions about crowdfunding compliance and enforcement, or any other corporate and finance law issues, please contact Thomas D. Selz at (212) 826 5535 or tselz@fkks.com.
Other Entertainment Law Alerts
Major Studios and Guilds Forge New COVID-19 Production Safety Agreement
As production begins to restart in an ever changing COVID-19 landscape, The Alliance of Motion Picture and Television Producers (AMPTP) and other major studios announced an important deal with the DGA, IATSE, Teamsters, Basic Crafts, and SAG-AFTRA -- meant to ensure the safety and security of their members during the upcoming months. Read more.
September 22 2020
New York City Reopens for Film and Television Production
On July 17, 2020 NYC Mayor Bill de Blasio announced that, with the City entering Phase Four of Reopening on Monday July 20th, 2020, film and television production in the City can restart again in earnest. Read more.
July 21 2020
Los Angeles County Authorizes Television, Film, and Music Production Resume on June 12, 2020 With Strict Regulations
On June 11, Los Angeles County approved a staged resumption of film and TV production beginning June 12, 2020. However, it comes with extensive regulations. Read more.
June 16 2020
