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RESPONSIBILITY OF THE INITIATOR IN CROWDFUNDING
ACTIVITIES
Qalandarov Aminjon Amondullayevich
Aminjonqalandarov9@gmail.com
https://doi.org/10.5281/zenodo.14242280
Ensuring civil liability in crowdfunding activities is one of the important
issues, as projects implemented through the platform involve various parties -
project creators (initiators), platform operators, and investors (or supporters).
Each party has its own rights and obligations, the fulfillment of which creates civil
liability based on the contract. Failure to comply with the terms of the contract or
non-compliance with the law may result in liability.
The creators of the project will begin to raise funds from investors by
presenting their project on the crowdfunding platform. Their responsibilities
include, first and foremost, the obligation to provide accurate and complete
information about the project, not to mislead investors, and to use funds for their
intended purposes. If the creator of the project provides investors with inaccurate
information or uses funds without purpose, he may be held liable. This liability
can usually be limited to financial obligations aimed at compensating for losses to
investors.
For example, if the creator of a project encourages investors to invest while
knowing that they do not have sufficient qualifications or resources to
successfully implement their project, this is considered fraud and can be sued by
investors through the court. The responsibility for compensating for losses
arising from non-compliance with the terms of the contract or failure to
implement the project is assigned to the creator of the project.
The Civil Code of the Republic of Uzbekistan is an important legal source
regulating relations between project creators and investors. Investors may suffer
if the creator of the project provides inaccurate or misleading information about
the project. In this case, according to Article 111 of the Civil Code, the contract
may be declared invalid if one of the contractors provided incorrect information
when concluding the contract. According to this code, liability mechanisms are
applied in case of violation of contractual obligations between the parties. In
particular, according to Article 333 of the Civil Code, the author of the project is
liable for failure to fulfill or improper fulfillment of the obligation, unless
otherwise provided by law or contract. According to Article 985 of the Civil Code,
if one party causes damage to the property or rights of the other party, it is obliged
to compensate for the damage. Misuse of funds for the wrong purposes also leads
to civil liability for the creator of the project. Determines liability for non-
fulfillment of obligations under the contract. If the creator of the project does not
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use the funds for the intended purposes, investors can claim compensation for
losses in this case.
The analysis of the “Smartbolla” case demonstrates the practical significance
of civil liability in crowdfunding activities. The crowdfunding platform
“Smartbolla” was designed to finance technology start-up projects. The platform
attracted investors to invest in startups and allowed project creators to raise
funds to implement their ideas. However, in several projects, investors invested
on the basis of incorrect information and suffered losses due to the misallocation
of funds. This situation arose as a result of the platform operators’ inadequate
control over projects and lack of transparency. Below are some information
related to the “Smartbolla” company. In March 2021, the international IT
company “Smartbolla”, which established itself as a brand rapidly entering the
global IT market, left behind hundreds of Uzbeks who invested in advertising and
a well-thought-out plan, were deceived and financially damaged.
“Smartbolla” was registered in August 2021 by the Yunusabad district public
services center of Tashkent with a charter capital of 10 million soums. As a type
of activity, the provision of services for the placement and processing of data is
defined, currently the activity has been terminated.
From the first days of its existence, “Smartbolla” announced 10 “ideas for
developing applications with unique algorithms”. SMM specialists worked well on
the promotion of these programs, PR-rollers and posters were made with taste,
but despite this, the programmers did not see the work. Against the backdrop of
empty promises that programs were being developed, the company also tried to
intervene in the NFT market, but apparently this attempt was also unsuccessful.
In conclusion, according to the project's website, the team of 45 people was
unable to show any results for more than 2.5 years.
Those wishing to participate in the project are promised to invest $100 to
$90,000 in the company and become its direct shareholders. The company used
smartbolla.com as the main tool for attracting investments. The site is currently
unavailable. The failure of the site contradicts the obligation to “continuously
provide shareholders with information about the company’s activities” specified
in the settlement agreement with investors. The document also includes a clause
that states that “the company is not to blame for investors not being able to access
their personal office” and it denies the above obligation.
Several sufferers admit that they did not even read the terms of the contract
before making an investment. In this case, it can be seen that the issue of legal
literacy among society is in a problematic situation. When Kun.uz contacted the
founder of “Smartbolla” M. Khasanov and asked him about the facts of the
investigation, he said that investors can receive the profit in the contract with the
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company only when the project is completed, and the collection of funds was
based on the crowdfunding system.
It is evident that due to the fact that the issue of liability in crowdfunding
relations was not clearly defined, investors lost their investments and no
measures were taken to recover funds. When financing crowdfunding projects, it
is first necessary to determine the budget of the project for which funds are
required. If the specified amount was accumulated, the project was to be
launched, and if sufficient funds were not accumulated for the project, the funds
were to be returned to their owners.
The responsibility of the initiator in crowdfunding activities is central to
ensuring trust and accountability within the ecosystem. The relationship between
project initiators, platform operators, and investors is regulated by contractual
obligations, with each party bearing civil liability for their actions or omissions.
For project creators, their primary responsibility is to provide accurate and
transparent information, manage funds for their intended purposes, and maintain
the confidence of investors. Breaches of these duties, whether through
misinformation or mismanagement of funds, expose initiators to legal
consequences, including financial liability for losses incurred by investors.
The case of “Smartbolla” underscores the critical importance of defining and
enforcing liability in crowdfunding projects. The lack of oversight, inadequate
legal frameworks, and insufficient investor due diligence led to significant
financial losses and eroded trust in the system. As demonstrated, the failure to
align actions with legal and contractual obligations can result in both reputational
and financial damages.
To mitigate these risks, it is imperative to establish clear legal standards,
enhance transparency, and promote legal literacy among investors and project
creators. Regulatory frameworks, such as the Civil Code of the Republic of
Uzbekistan, provide mechanisms for addressing violations, but consistent
enforcement and public awareness are equally vital. Ultimately, accountability in
crowdfunding depends on robust legal structures, proactive oversight by
platforms, and the diligence of all parties involved in upholding their
responsibilities.
