Artists and music industry executives are asking for British-based company PledgeMusic to be investigated as the crowdfunding platform goes into administration, leaving dozens artists without the funds that they had raised for their projects. Industry estimates put the unpaid pledges in the region of $1-3 million.
Michael Dugher, CEO of pan-industry body UK Music, has sent a letter to Small Business and ConsumerMinister Kelly Tolhurst in which he demands that PledgeMusic be referred to the UK's Competition and Markets Authority.
"Many musicians across the UK relied on crowdfunding website PledgeMusic to deliver payments from patrons, to pay for album recordings and other costs. These artists were already enduring long delays in receiving payments. As a consequence, creators who used PledgeMusic’s services are likely to lose money if it goes into administration without resolving its outstanding debts," wrote Dugher.
He added: "Musicians should be able to trust crowdfunding platforms to fulfill their obligation of delivering money pledged by fans and supporters. I would therefore ask that you refer PledgeMusic to the CMA to ensure this matter is properly investigated."
Fraud on a massive scale
Several artists have also been outspoken about PledgeMusic lack of accountability. "As artists, It's now time we demand action from the industry bodies who support us," Ian Baker from US band Jesus Jones told Hypebot. "It's time for them to forcefully pursue Pledge, to ensure that criminal actions can not go unpunished, and that those responsible for malicious, damaging, and heartless fraud on a massive scale are never allowed to do it again."
British corporate advisory company FRP has been tasked with the mission to find a buyer for PledgeMusic's assets. The proceeds of the sale, if any, would help pay artists and creditors. The company stopped taking on pledges on February 4. Before going into administration, PledgeMusic sold its affiliate Noisetrade to Paste Media for an undisclosed amount, and there were hints that there could be an interested buyer, but the purchase did not materialise.
Pledge co-founder and former CEO Benji Rogers, who was no longer involved in the running of the company these past two years, went back to Pledge just over three months ago. In a blogpost, he said he went "as a volunteer to try and help the board and team turn around and sell the company." He apologised in a blogpost for not having been able to rescue the company and said he would have "given anything to have been able to fix Pledge."
Failure in execution
"I am sad to report that this effort has not met with success and that PledgeMusic will shortly be heading into administration," he wrote. "I cannot begin to appreciate how all of you affected artists are feeling about this and I am deeply sorry for what you have been through. I ask all of the fans to please understand the awful and near impossible situation that this has put the artists that you love and supported in, and as such I ask you to bear with them as they do their best to make any obligations to you right. I am also sorry for all of the labels, fulfillment companies and other vendors affected."
For Rogers, the demise of PledgeMusic should not reflect negatively on the crowdfunding process. "I have seen recent media articles criticising the business model of crowdfunding and I feel that these are unfair," he elaborated. "A failure in execution does not mean that the model is fundamentally flawed. I still believe that there is a great future for fan-funded projects in this industry and I hope that someone builds a new version of, or resurrects what we started. I would gladly help in this effort."
All the signs point to, at best, some serious mismanagement at PledgeMusic. The model of crowdfunding itself does not seem to be the problem, but the execution was certainly faulty in this case, as co-founder Benji Rogers wrote in his apology.
The pledges, rather than being preserved into an escrow account, were emerged into the overall P&L of the company, with new pledges serving to pay old pledges, while funds were used to finance PledgeMusic's expenses and other projects. Looks very similar to a Ponzi scheme.
So what happened to the internal mechanisms that could have prevented this fiasco? In other words, as succinctly put by US lawyer Chris Castle: Where was the board?
The silence of PledgeMusic's management, save for Rogers who was desperately trying to save his creation, spoke volumes. Their inability to address artists' demands was beyond unprofessional and showed contempt for the class of musicians and pledgers who had trusted PledgeMusic with their projects and their money.
The company needs now to be fully investigated. Its management must be held accountable. And if there have been illegal actions then justice needs to be served. In addition, all the other crowdfunding platforms should be revising their own internal processes to make sure that such an unfortunate situation never gets repeated.
This is the only way to maintain trust in the crowdfunding process.