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FTC sues smart backpack creator for allegedly using crowdfunded money to buy bitcoin

FTC sues smart backpack creator for allegedly using crowdfunded money to buy bitcoin


The iBackpack never shipped

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The Federal Trade Commission is suing a man for allegedly running off with more than $800,000 he raised on crowdfunding platforms under the premise of creating a smart backpack and other products. The Verge first broke the news of the iBackpack investigation in August, but today marks the agency’s first acknowledgment of its work.

The lawsuit claims that the creator, Doug Monahan, didn’t use his raised Indiegogo or Kickstarter funds to develop or deliver the backpack, but instead, he put the cash toward “various personal expenses,” including the purchase of bitcoin, ATM withdrawals, and to pay off credit cards. The agency also claims that backers reached out to Monahan, but he ignored their complaints, shut down the company, and ceased communications.

Monahan launched multiple campaigns under the iBackpack name, including a second-generation version, before ever delivering the first. The complaint states that Indiegogo staff began asking about the status of the backpacks in November 2016, and Monahan said they were in the “full production and shipping phase” and that the company had already shipped the backpack to “hundred if not thousands” of backers. At the same time, the complaint says, Monahan told backers they wouldn’t receive units until December 2016 and then delayed that date to the fall of 2017. No complete units were shipped, the FTC says. Monahan also shut down the iBackpack website, Facebook page, and all corporate email accounts, according to the complaint.

Monahan allegedly used the funds to buy bitcoin

The lawsuit goes on to claim that Monahan threatened backers who complained. In one instance, he allegedly told one customer that he knew where they lived. He allegedly told another that he’d sue them and their employer for libel and slander. The FTC is seeking refunds for backers and a “permanent injunction” to prevent Monahan from using crowdfunding again.

This is the second time the FTC has gone after a crowdfunding campaign. In 2015, it settled with Erik Chevalier, who raised more than $122,000 for a board game and later sold backers’ data to outside firms. The FTC settled for close to $112,000. Chevalier was subsequently ordered to stop disclosing or benefitting from customers’ personal information. The FTC also banned him from misrepresenting any future crowdfunding campaigns or lying about refund policies. 

Crowdfunding always comes with risks to backers, and the platforms admit as much, but they’re beginning to build more robust systems to ensure that creators make the products they promised. Indiegogo has launched guaranteed delivery, which withholds raised funds until creators actually ship their products. It’s opt-in, but the idea is that these campaigns could raise more money than usual because backers know they’ll get their money back if the project doesn’t work out.

Kickstarter says it works with creators ahead of their campaign’s launch to verify their identity and make sure they communicate with backers. Jon Leland, senior director of strategy and insights at Kickstarter, recently told The Verge that Kickstarter is looking to build “a number of tools related to transparency on campaigns” that are “fairly radical.”