Smart backpack creator sued by FTC over alleged crowdfunding fraud

The Federal Trade Commission is suing the founder of a company that raised funds for 'iBackPack' and a couple other products on Kickstarter and Indiegogo. The agency first revealed that it was investigating the crowdfunding campaigns last August following complaints from supporters. In its most recent update on the matter, the FTC alleges the man behind the campaigns 'used much of the funds for himself.'

The saga started, according to the FTC, in 2015 when iBackPack of Texas LLC's Douglas Monahan allegedly launched a crowdfunding campaign through Indiegogo for a smart back pack called 'iBackPack.' Funds pledged to the campaign were reportedly earmarked for development, production, and distribution of the product, which had been scheduled to happen by March 2016.

That campaign resulted in more than $720,00 in funds by November 2016, according to the FTC, which says the original delivery date was missed and that a second campaign was launched on Kickstarter in March 2016. That campaign was reportedly intended to raise funds for iBackPack 2.0 — it ended in April 2016 with more than $76,000 in funds.

The FTC's complaint alleges that Monahan had started another two crowdfunding campaigns around the same time for a shoulder bag called MOJO and another product called POW Smart Cable. These campaigns raised approximately $11,000, the FTC reports. Ultimately, the complaint states that Monahan raised more than $800,000 from consumers across these four crowdfunding campaigns.

The FTC accused Monahan of having made 'a number of false statements to consumers' related to the products' status and to the crowdfunding sites in order to avoid 'being kicked off their platforms.' These allegedly false statements included claims about the POW Cables being 'on their way here' and similar statements. However, and at the heart of the matter, is the FTC's allegation that 'most of the money' raised by these campaigns were used for 'personal expenses and marketing efforts to try to raise funds,' not on the products.

After a 5-0 Commission vote that authorized the legal action, the FTC filed its complaint in the US District Court for the Southern District of Texas. The State of Texas has also taken its own legal action against the LCC and Monahan, according to the government agency.

In a statement about the complaint, FTC Bureau of Consumer Protection Director Andrew Smith said, "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."

The Commission's full legal complaint can be found here.