Crowdfunding Lawsuit: An Important Reminder About Crowdfunding Fraud

May 20, 2019

Several months ago, we blogged about a Federal Trade Commission investigation into a crowdfunded project that didn’t pan out. Well, it looks like that inquiry is over and the FTC is moving forward with a legal action. This month, on May 6, 2019, the FTC filed a Complaint against iBackPack of Texas, LLC and its alleged owner, Douglas Monahan. The case is a reminder that government watchdogs are on the lookout for crowdfunding fraud.

The Case: FTC Files Claim against Crowdfunded Tech Project

The FTC’s Complaint alleges that back in 2015, Douglas hopped on Indiegogo and created an account for his idea: a high-tech backpack outfitted with charging ports and built-in Bluetooth. If funded, he estimated a March 2016 ship date.

The money flowed, and he launched smaller campaigns on Kickstarter the following year.

All in, people showered Doug with about $800,000 in seed capital.

But when estimated due dates allegedly came and went without a product to show, backers started asking questions. For his part, the FTC alleges Douglas made and broke promises. Others say he was unresponsive to inquiries. Whatever the case, the iBackPack never materialized.

According to the commission, Monahan used the crowdfunded money on himself and marketing efforts to raise more capital and no funds went in to developing the promised backpack, a clear violation of FTC advertising standards.

The commission filed with the U.S. District Court for the Southern District of Texas, Galveston Division. The final ruling is now in its hands. Remember: Just because the FTC sues doesn’t mean they are in the right. Case in point: Our firm has prevailed against the FTC in court.

The Takeaway: The FTC Is on the Lookout for Crowdfunding Fraud

The main takeaway is that the FTC has at least one radar set to “crowdfunding fraud.” As explained by Andrew Smith of the FTC’s Bureau of Consumer Protection:

“If you raise money by crowdfunding, you don’t have to guarantee that your idea will work. But you do have to use the money to work on your idea—or expect to hear from the FTC.”

Contact a Crowdsourcing Lawyer

The Gordon Law Group works with individuals and businesses that use crowdfunding as a revenue tool. We’ll make sure you’re compliant with all current international, federal, state, and local crowdfunding and marketing laws. Or, if you find yourself entangled in a crowdfunding lawsuit and need representation, we’ll vigorously fight for your interests.

Get in touch today. Let’s start organizing your options.

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