How a Promising Kickstarter Campaign Devolved into Embezzlement Allegations

This article originally appeared on VICE Canada

Rylan Grayston promised 3D printers for $77 [$100 CAD], and thousands of people got behind what was touted as quite possibly the simplest laser-resin printer ever.

Peachy Printer raised about $500,000 [$651,091 CAD] from 4,420 backers on Kickstarter and another $57,293 [$74,167 CAD] was raised on Indiegogo. It was the largest amount raised in crowdsourcing for a project in Saskatchewan, Grayston's home province.

That was 2013. Now, Grayston is in a basement in Yorkton, Saskatchewan surrounded by printer parts wondering about storage, rent, and what the hell he's going to do next. Grayston alleges that more than $247,200 [$320,000 CAD] meant for printers is tied up in a house his former business partner is building.

"I feel like I have been running a marathon because hardware [research and development] is a long process," Grayston told VICE.

"When I found out about what happened I just feel like my legs have been just cut right off while I'm running a marathon and I'm running on stumps still trying to carry the torch and I am finally bleeding out."

The allegations of embezzlement were posted on the Peachy Printer Kickstarter page along with some tell-all videos and a recorded confession from the co-founder and house-builder David Boe.

"I'm sorry, but I went and spent approximately $193,124 [$250,000 CAD] of our Kickstarter money on building my house," Boe said in the video, as subtitles explain that later the company found out it was more. "It's something I regret and I'm sorry for doing it."

The video was filmed in 2014 but was only posted on Tuesday. Speaking to the BBC, Boe confirmed it was him in the video.

"That was taken under duress, extreme duress, at that date," Boe said. "They actually told me exactly what they wanted said in that."

Grayston said that comment is "laughable" and they have footage that shows that Boe could come and go when he wanted.

But how could a partnership which seemed optimistic and innovative only a few years ago sink to a point of black backgrounded, dramatically lit, ominously soundtracked videos, and allegations of theft?

From promising venture to a basement full of parts

Grayston was around 28-years-old when he began tinkering with the idea for his affordable 3D printer when he couldn't afford the expensive ones on the market. He says he had worked with Boe on some other projects and Boe had always been the money man. Prior to the Kickstarter campaign, Boe had already invested $77,000 [$10,000 CAD] into the project.

"I knew him quite well by the time we launched this Kickstarter campaign—or at least I thought I did," Grayston, who is now 31, said.

The campaign was launched and quickly surpassed the original $38,624 [$50,000 CAD] goal—where backers of $77 [$100 CAD] got 3D printer kits. Once some serious cash was being pledged, Grayston said he realized they needed to incorporate and became Rinnovated Design, but by that time the original crowd funding account was already attached to Boe's bank account.

Once the campaign closed Grayston said that his business partner transferred $154,500 [$200,000 CAD] into their corporate account. As Rinnovated Designs hired employees and got to work, Grayston said Boe became harder to reach, as did their money. Boe worked out of the province, and although he did payroll, Grayston said he always had an excuse as to why he couldn't transfer the bulk of the funds into the corporate account.

"Dave [Boe] had 50 per cent of the company, he had access to the corporate bank accounts, he did our payroll, and he was lying to us at the time saying that he still had the money in his account," Grayston said.

When the initial $154,500 began to dry up, Boe would only transfer over another $24,174 [$30,000 CAD] into the corporate account. That's when Grayston said he really figured out something was wrong.

Instead of the money going to printers, Grayston alleges that Boe had used the money to build a house. Boe was asked for his resignation, sold his shares back to Grayston, and was essentially out of the business.

Peachy Printer spoke with their lawyers, who suggested the company get Boe to sign a contract which included an admission of guilt and a repayment agreement, instead of going to authorities. Boe submitted the first payment, then defaulted on two others. Up until about a year ago, Boe had paid back over $77,000 but then he stopped.

Last November, Peachy Printer filed a complaint with Saskatoon Police.

"Since then, detectives from our Economic Crime Section have conducted some preliminary investigations, however they are still waiting for more information from the company's owners. Once they receive that information the Crown Prosecutor will be consulted to determine if this is a criminal case, or if it should proceed through civil litigation," police spokesperson Alyson Edwards told VICE in an emailed statement.

While this was all going on, Peachy Printer was updating their page with product advancements and even technical issues, no word of the underlying scandal. Grayston said it was because he had hoped to find another solution. Peachy got a federal grant of about $70,000 [$90,000 CAD] and a hefty $38,624 family loan. More issues arose including trying to achieve Laser Classification Certification.

Eventually the company's eight employees were let go and Grayston was left with the parts for 600 3D printers but no cash to build or ship them. He was in a position where he had no options left but to let investors know.

"This is 4,420 people's money. I don't really consider it to be my money, at least not until I ship printers. I certainly don't think it's Dave's money. I think it's their money and I think they deserve to know what happened," said Grayston.

When Kickstarter campaigns fail to live up to their promises

No printer parts, no staff and no money means it's unlikely that anyone will be receiving their Peachy Printer. Grayston said he hopes to find another way to get the printers moving but now with this mess and an alleged theft in the company, finding investors is going to be pretty difficult. There's also the issue with not fulfilling the obligation to his Kickstarter supporters. "The terms of use are really clear, there is a contract that is being created between the project creator—being me and David—and the backers. So we are legally bound to either deliver these printers or refund the money," Grayston said, adding: "obviously we just can't deliver or refund when we have no money—it's clear cut."

For their part, a Kickstarter spokesperson emailed VICE saying, "Anyone who abuses our system and the trust of our community exposes themselves to legal action. We're reaching out to the law enforcement officials who are already looking into this case, and will assist however we can."

It's certainly getting more common after new rules in 2014 made it easier for backers to take legal action. So far, it's only been used outside Canada, but Grayston said if backers take it into their hands, it could start the ball rolling here.

"A precedent needs to be set in Canada that this won't be taken lightly and it will be dealt with. That is a really good message and it would at least make this whole thing worth something if that happened," Grayston said.

Kickstarter has made it abundantly clear that they are not a store, even though it often feels like one. But that doesn't mean that there isn't an obligation to follow through on promises.

READ MORE: Peachy Printer Blames Co-Owner for Building Mansion, But Funds Are Still Missing

In 2015, the United States Federal Trade Commission, in its first case involving crowdfunding, took legal action against a project creator. Erik Chevalier raised more than $94,244 from 1,246 backers to produce a board game called The Doom That Came to Atlantic City. Although Chevalier posted updates to the Kickstarter page showing progress, over a year later it was disbanded and backers were told they wouldn't receive anything (he promised refunds, although they never came).

According to the FTC, "Chevalier spent most of the money on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment, and licenses for a different project."

Chevalier was ordered to pay $86,360.533 in the precedent setting case. That was suspended because he couldn't pay but the ruling said "the full amount will become due immediately if he is found to have misrepresented his financial condition."

Some of Peachy Printer's backers believe the account Grayston has posted online (along with financial documents, paperwork, recorded phone calls, and a timeline) putting messages of support on the Kickstarter wall. "I believe that you were doing what you believed was right for us backers, and that's all that can be asked," posted Russell McClellan.

Not everyone is so understanding. Hundreds of others are calling for the entire technology to be released as open source or directly to the backers. Grayston has published all 26 of Peachy Printer's Git repositories which includes all of the source code and design files associated with the project.

Backers also asking questions about how the rest of the money was spent, some demanding that both co-founders hear from the police.

"Yes David appears to be at partial fault, but Rylan and Rinnovated Design also appear to be at fault and charges should be brought against all of them, and any others. The courts should decide the level of fault/guilt assigned to each party and all assets, including IP rights, should be sold to provide partial refunds to the secured and unsecured parties," backer ed blaser wrote on the Kickstarter's wall.

Others are generally disappointed for what it means for future projects like it. "It just has serious implications on future technology projects that really need and deserve funding, because we will always remember the many failed projects we have backed in the past," Dave M. adds.

In an an independent analysis by the University of Pennsylvania provided by Kickstarter, it showed that 9 per cent of Kickstarter projects failed to deliver rewards, 8 per cent of dollars pledged went to failed projects, and 7 per cent of backers failed to receive their chosen reward.

"Project backers should expect a failure rate of around 1-in-10 projects, and to receive a refund 13 per cent of the time," Professor Ethan Mollick wrote in the analysis.

According to Kickstarter if a creator can't fulfill their project they need to take steps like offering a refund or showing how the funds were used to "satisfy backers." According to the terms of use they have to be honest, make no misrepresentations to backers and demonstrate that they used the money appropriately.

"If they're unable to satisfy the terms of this agreement, they may be subject to legal action by backers," it states.

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