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Crowdfunding is a popular way to raise money. Just don’t count on getting a refund if something goes wrong.

Rob Loukotka launched his fifth Kickstarter project in the summer of 2017.

Within a month, the Chicago-based artist had raised more than $20,000 online from nearly 400 people across the country. In exchange for the capital, Loukotka promised to create posters with gold ink that depicted ACME Corp. products from the Looney Tunes cartoons.

But more than a year later, well past Loukotka’s estimated delivery date, many donors still had not received their artwork. When Loukotka, 30, revealed on Kickstarter that his mental health struggles caused the delay, some benefactors said they didn’t mind waiting.

Others were less forgiving: They notified the Illinois attorney general’s office, complaining about possible fraud.

Over the past decade, Illinois consumers have increasingly asked the state to resolve crowdfunding disputes, which the platforms themselves are not required to address. Such websites have revolutionized the way entrepreneurs, artists and altruists can raise money, enabling them to reach a wider audience in record speed. But for contributors with concerns about how their donations are being used, there are few options for recourse.

In Illinois, the state’s consumer fraud bureau has received 30 complaints regarding campaigns on GoFundMe, Indiegogo and Kickstarter since 2012, according to copies reviewed by the Tribune. The majority were filed by people who had not received a product, while others reported concerns about purported charitable causes. More than two-thirds of the complaints were filed in 2017 and 2018, the most recent years for which records were made available.

One complaint was about a church claiming to raise money on GoFundMe for victims of a fire. A man reported that he was suspicious because he couldn’t find a website for the church and the organizer didn’t respond to his questions about the amount of money collected.

In another complaint, a woman said she paid $365 to a Kickstarter project promising to create a special type of luggage that could be opened with a sliding door instead of a zipper. But she never received the suitcase, and the company deleted all of its social media accounts.

When the Illinois attorney general’s office receives complaints like this, it looks for instances where it believes fraudulent activity has occurred, and attempts to resolve disputes out of court, said spokeswoman Annie Thompson.

“While not every complaint alleges or involves fraud, the office mediates each complaint on behalf of the consumer as a public service because the office often can have success where individual consumers might not,” Thompson wrote in an email. Possible outcomes could include a refund or an agreement on delivering a product.

Most complaints filed with the attorney general’s office have to do with what’s called rewards-based crowdfunding. That’s when people who launch projects on sites like Kickstarter and Indiegogo seek money to develop a product, artwork or some other creation. People who donate money are referred to as backers and are promised a reward, often the thing being created, if the project is fully funded.

The other main type of crowdfunding is charitable solicitation, more common on GoFundMe. In those cases, people collect money for a specific beneficiary — perhaps the victim of a fire or a natural disaster — and donors are not promised anything in return for giving.

David Gallagher, a Kickstarter spokesman, said the bulk of the website’s creators follow through on their pitches, citing a 2015 analysis commissioned by the company that found just 9 percent of projects failed to deliver rewards. Still, he said, not all projects go smoothly, and Kickstarter doesn’t guarantee they will.

“Creating something new can of course involve unexpected obstacles — particularly when the creator is just a person, not a big team or company,” Gallagher wrote in an email. “We encourage project creators to be transparent and open with backers about any issues they run into on the way to completing their projects.”

In Loukotka’s case, three people complained to the attorney general’s office in 2018, saying he hadn’t delivered the products and was not responsive to requests for a refund, according to state records.

In an interview with the Tribune, Loukotka said the project went awry after he experienced the mental health problems and ran out of money, which he had put toward shipping supplies, the rent for his studio and supporting himself. Though he said he is working to ship the remaining orders, he still faces backlash on his Kickstarter page, where some customers post angry messages.

One user wrote that he was so mad that if the poster did arrive, he planned to “burn it or use it for toilet paper,” according to a post on the page. Others called Loukotka a con artist, thief and moocher.

“Whatever I say doesn’t seem to suffice,” Loukotka said. “The only thing they want is their poster or their money back, and I don’t have either. What I can tell them is … there was no intent to defraud anybody or have any of this ever happen. I just wanted to draw pictures and have them in people’s houses.”

‘The law needs to evolve’

Though crowdfunding websites are relatively new, the concept has gained tremendous popularity over the years. GoFundMe has raised more than $5 billion since launching in 2010, Kickstarter has secured $4.2 billion in funding since 2009 and Indiegogo reports collecting $1.5 billion since 2008.

For rewards-based crowdfunding, some websites use an “all-or-nothing” model, which means the creators keep the money only if they reach their fundraising goal.

Despite their prominence, crowdfunding platforms are subject to little state or federal regulation. They have also faced few legal challenges.

In part, that’s because platforms establish in their terms of use that they cannot be sued. If a project is fully funded, the donors and the project creator — not the platform — enter into an agreement that becomes legally binding like a contract.

In addition, private attorneys are hesitant to take up cases because they know the potential for damages is small, said New York attorney Thomas Selz, who advises clients on crowdfunding regulations and laws. As a result, Selz said, people must turn to government agencies for help, even though that isn’t a sure bet either.

State attorneys general “have limited resources, so they are only going to go after somebody if there’s been a big number of people who have been defrauded in their state,” Selz said. “It has to be pretty egregious for that to happen.”

Indeed, officials in Illinois have never taken a crowdfunding case to court. However, two cases brought by attorneys general in other states, and one by the federal government, provide examples of how the process can unfold.

In 2014, Washington state Attorney General Bob Ferguson filed the first consumer protection lawsuit related to crowdfunding on behalf of 31 residents. According to the lawsuit, a project creator raised more than $25,000 on Kickstarter by promising to create a horror-themed card deck but never delivered the product. A judge ultimately found the creator in violation of the state’s consumer protection act and ordered him to pay $54,851 in restitution, civil penalties and court fees, according to the ruling.

The following year, the Federal Trade Commission filed a complaint against someone who raised more than $122,000 on Kickstarter to create a board game. The commission accused the creator of using the money intended for the game to pay for rent, moving expenses and unrelated equipment. The creator settled, and the court waived a $111,793 judgment that he could not pay. As part of the agreement, creator Erik Chevalier was ordered to destroy any personal information about his customers and barred from deceiving the public in any future projects.

Most recently, the Oregon Department of Justice in 2017 investigated a Kickstarter campaign called Coolest Cooler, which raised more than $13 million. That case also ended in a settlement, with the company promising to deliver the souped-up cooler — equipped with an ice crusher, speakers and USB chargers — to 20,000 customers who never received it, according to media reports.

The common thread linking these three cases, experts said, is that project creators misrepresented what they would do with the money they received and did not honor their promises.

In recent years, some platforms have added their own accountability measures. GoFundMe, for example, instituted a refund policy in 2016 that applies in a handful of situations, including if a campaign organizer or beneficiary is criminally charged in connection with a fundraiser.

Kickstarter, on the other hand, offers no refunds if a project is fully funded, though it allows creators to issue them on an individual basis. In 2011, the website started requiring some creators to include images of a prototype, and it also makes creators disclose the risks and challenges for supporting their project. Kickstarter does not investigate whether a creator is capable of bringing a project to fruition before allowing the creator to use the website. On its site, Kickstarter says it uses an algorithm to ensure that creators have met the standards for launching a project and may manually review some projects as well.

Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C., said the government should require crowdfunding websites to vet their users more thoroughly before allowing transactions to take place on their platforms.

“This is where the law needs to evolve, and this is where you see the crowdfunding sites pushing back,” he said. “They have a duty to their customers that they can’t merely get away with by saying, ‘Hey, we can’t vouch for everybody who is on our site. Do your own due diligence,’ and that sort of waives their obligation.”

Projects go dark

When Douglas Cumming, a professor at Florida Atlantic University, reviewed projects on Kickstarter and Indiegogo over a six-year period, he found that a very small number of cases raised questions about whether fraud had occurred.

Between 2010 and 2015, Cumming identified 207 cases of possible fraud out of more than 100,000 projects.

For his tally, Cumming created his own standards for fraud, separate from legal definitions. He said he included projects that simply “went dark” — meaning a creator stopped interacting with donors before a project was completed.

“The people who gave the money have a good reason to be upset if there is zero explanation,” he said. “That just seems ethically wrong.”

Cumming also found that projects most likely to be fraudulent tended to share a set of characteristics, which can serve as red flags for consumers. Generally, he found that indications of possible fraud included the project creators lacking prior crowdfunding experience, not having a social media presence and including poorly worded and confusing language on their project pages.

Proponents of crowdfunding warn that it is not that easy to differentiate between a failed project and a fraudulent one. Projects can go dark for a variety of reasons, especially if entrepreneurs are afraid to tell donors about the problems they are facing. Some consumer protection experts also said it’s important to consider a creator’s intent to finish the project when the money was first collected.

Loukotka, the poster artist, said it was emotionally difficult to try explaining his predicament to customers because of the nasty responses that always followed. After his interview with the Tribune, Loukotka logged into his Kickstarter for the first time in months and updated his backers. He told them he is working to finish the remaining orders from the basement of his apartment and shipped 171 posters last month.

“I just wanted to apologize again for the delay, and apologize in general for the poor experience I’ve caused,” he wrote. “It will still be slow, but I am very committed to getting more and more and more of these rewards out each month.”

Loukotka said he received two letters from the Illinois attorney general’s office informing him that he was the subject of complaints, but the agency took no further action against him. The office did not respond to additional questions about its contact with Loukotka.

In another local case, journalist Amy Guth, who raised nearly $55,000 on Kickstarter to create a documentary, has been questioned on the site by donors who said she hasn’t sufficiently explained the delays in her project.

Guth, a former Tribune employee, launched the campaign in 2015, writing on the website that she aimed to make an “episodic documentary” about “women and online harassment.”

Guth wrote that episodes would be available to watch online at no cost. The project received considerable media coverage after it was launched from Chicago newspapers, TV and radio stations.

In March 2016, Guth posted on her Kickstarter that filming and interviews were underway. And in November 2016, Guth wrote that she was “days away” from beginning to release mini-trailers ahead of the first episodes.

Almost 21/2 years later, that has yet to happen. Though some backers have asked on the site for refunds and information about why the project stalled, Guth did not publicly address the most recent concerns on her Kickstarter until March 1, after an interview with the Tribune about the issue.

Guth, who is president of the Chicago chapter of the Association for Women Journalists, said in an interview with the Tribune and in a subsequent update on her Kickstarter page that a number of reasons caused the delay.

She said developments such as the election of President Donald Trump and the #MeToo movement “required me to rethink the narrative of my documentary, add new people/interviews, have more conversations, do more research, and learn more about new legislative and activist efforts,” according to her post.

Guth also apologized on the site to supporters for not updating them “in a while,” explaining that because of safety concerns that arose from online harassment of her own interview subjects, “I’ve needed to take precautions I didn’t anticipate.”

Guth told the Tribune: “I haven’t checked Kickstarter specifically as much as I should have. I have not been in touch with my backers as well as I should have. But at no point has the project been off.”

Asked why the mini-trailers never came out in 2016 as she wrote they would, Guth said, “That was the plan at the time and they didn’t get completed before another political change had happened.”

The company under which she is producing the series, Strangewaze LLC, was involuntarily dissolved by the Illinois secretary of state’s office in October, state records show. Guth said in February that she was not aware the company’s registration had lapsed and that it must have been a clerical error.

The attorney general’s office has received no complaints regarding her project.

Despite Guth’s recent update on the Kickstarter page, donor Jeff Brennan said he still has reservations about her commitment to follow through.

Brennan, who said he donated $100 to the project, found it troubling that Guth ignored the requests for information on her page for so long. Brennan said this was the first time he donated to Kickstarter, and he won’t do it again because of the negative experience.

“If a project that was this high-profile could languish and more or less disappear without anything happening, I just don’t think there’s any guarantee that something smaller would come to fruition,” he said. “I don’t want to put my money on the line for something that can very easily just not happen.”

echerney@chicagotribune.com

Twitter @ElyssaCherney