The Federal Trade Commission has taken legal action against the operator of a deceptive crowdfunding scheme who told consumers he was raising money to develop a high-tech backpack and other products, but failed to deliver any of the products and instead used much of the funds for himself.
In its complaint, the FTC alleges that Douglas Monahan, operating through his company, iBackPack of Texas, LLC, raised more than $800,000 from consumers through four crowdfunding campaigns, falsely claiming the funds would be used to develop a handful of products. This included an “iBackPack” that would incorporate batteries for charging laptops and phones, cables and a Bluetooth speaker.
“If you raise money by crowdfunding, you don’t have to guarantee that your idea will work,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “But you do have to use the money to work on your idea—or expect to hear from the FTC.”
According to the FTC’s complaint, Monahan first sought funding in 2015 for the iBackPack through the crowdfunding site Indiegogo, saying contributions would go to develop, produce, and distribute the product by March 2016. The campaign raised more than $720,000 by November 2016, according to the complaint.
Despite missing the delivery date for the iBackPack, Monahan started a second crowdfunding campaign in March 2016 via Kickstarter to produce and distribute the iBackPack 2.0, an updated version of the still-unproduced original iBackPack, according to the complaint. This campaign ended in April 2016 after raising more than $76,000 without ever delivering the promised product.
During the same time period, Monahan started two additional crowdfunding campaigns on Indiegogo, which raised a total of about $11,000, according to the complaint. One campaign claimed it was raising funds to produce and distribute the “MOJO,” a shoulder bag that incorporated batteries, cables and other features. The other campaign claimed to be raising money to produce and distribute the “POW” Smart Cable, a magnetic USB cable system with various technological features.
Monahan made a number of false statements to consumers about the status of products as well as to the crowdfunding sites to keep from being kicked off their platforms. These include announcing in August 2016 that the POW Cables were “on their way here” or were “done/finished/shipped over with” or would be received within six weeks.
Despite repeated assurances, Monahan did not use the contributions received from the crowdfunding campaigns for the promised products, the FTC alleged. Instead, he spent most of the money on personal expenses and marketing efforts to try to raise additional funds, according to the complaint. Hundreds of consumers complained on the crowdfunding platforms about Monahan and his company’s failure to provide the promised products and about threats they received from Monahan after they contacted him with their concerns.
The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Southern District of Texas, Galveston Division. The State of Texas today also filed suit against iBackPack of Texas, LLC and Monahan.
NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
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