San Francisco District Attorney files lawsuit against drone maker Lily for false advertising

After raking in tens of millions in preorders and venture capital, the drone maker — if it can really be called that — Lily is shutting down. But its problems won’t end there: San Francisco’s District Attorney filed a lawsuit today accusing the company of false advertising and unfair business practices.

The lawsuit is the result of several months of investigation, a statement from the DA’s office explained. It was filed today, but Lily was informed yesterday — likely prompting the decision late last night to issue refunds and dissolve the company. Maybe they were planning to do it anyway, but the timing is certainly a little suspect. I’ve contacted the company for comment.

Update: A Lily representative tells TechCrunch that the refund and wind-down was in the works for this week anyway, and that the warning from the DA came at just the right time, or wrong, depending on how you look at it. An official statement on the suit is expected soon.

Part of the suit has to do with the initial pitch video, watched by millions of people, showing off what appeared to be a Lily drone following users and shooting video. The drone responsible for all that fancy aerial work and video was not in fact a Lily, but a DJI Inspire, something the creators failed to mention.

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It may not be surprising to those familiar with crowdfunding that Lily didn’t have a final product with all the advertised capabilities when it made its pitch. That’s kind of the game, right? But at some point, you cross over from aspirational to fraudulent, and the DA’s suit alleges that Lily’s video is demonstrably the latter.

If that weren’t enough, court documents describe an email chain in which co-founder Antoine Balaresque worries that people will be able to tell certain video purported to be from a Lily was in fact shot on a GoPro. “I think we should be extremely careful if we decide to lie publicly,” the email attributed to Balaresque reads.

There’s also a slightly technical issue that forms a second front in the DA’s lawsuit: the fact that they went with an independent “pre-order” strategy rather than an established crowdfunded development site like Kickstarter. That makes Lily’s money qualify more on the side of internet sales than investment in an idea (something Kickstarter and its projects are always careful to explain), which exposed the company to certain consumer protection laws.

One, the FTC’s Mail Order Rule, required that, if a pre-ordered product is seriously delayed, the company must issue refunds unless customers indicate they don’t mind the wait. Lily certainly must qualify as having encountered long delays — from February 2016 to “later in 2017” — but refunds were not issued at large.

It’s this second offense that caused the DA’s office to file a temporary restraining order freezing Lily’s assets — to prevent it from, in the words of the TRO, “further dissipating these ill-gotten preorder funds.”

Lily has promised to return the money, and we’ll see how that goes, but if the DA prevails, the company will also have to pay civil penalties: $2,500 for each of the violations described above. Depending on how the judge interprets things and how the lawyers state their cases, that could amount to either a lot of money or a hell of a lot of money. Worst-case scenario is around $300 million in penalties, though of course Lily doesn’t have anything like that laying around.