Drone maker Lily Robotics sued by San Francisco district attorney

A video by Lily Robotics shows what the startup claimed to be "the world's first throw-and-shoot camera," a drone that would fly around and photograph the user while pursuing outdoor activities. The company took $34 million in preorders after it launched in 2015, and announced it would shut down in January without delivering the promised drones. less A video by Lily Robotics shows what the startup claimed to be "the world's first throw-and-shoot camera," a drone that would fly around and photograph the user while pursuing outdoor activities. The company ... more Photo: Lily Robotics Photo: Lily Robotics Image 1 of / 4 Caption Close Drone maker Lily Robotics sued by San Francisco district attorney 1 / 4 Back to Gallery

The San Francisco district attorney’s office sued Lily Robotics on Thursday over claims that the San Francisco drone maker engaged in false advertising and unfair business practices.

News of the lawsuit came on the same day the Lily announced it would be shutting down its operations after failing to secure additional funding.

Lily received $34 million worth of orders last year for its “throw-and-shoot” camera drone, which the company said could take flight and begin recording video after being tossed into the air.

Crowdfunding campaigns such as Lily’s became popular after Pebble, a Redwood City startup, raised $10 million in orders for a smartwatch in 2012.

MBA BY THE BAY: See how an MBA could change your life with SFGATE's interactive directory of Bay Area programs.

Lily said it would begin shipping drones to customers who had placed orders by February 2016, but failed to live up to that promise, the district attorney’s office said.

After conducting what it said was a months-long investigation, the office alleged that Lily lured customers with a promotional video that was actually filmed by a “much more expensive, professional camera drone that requires two people to operate.”

“It does not matter if a company is established or if it is a startup,” District Attorney George Gascón said in a statement announcing the lawsuit Thursday. “Everyone in the market must follow the rules. By protecting consumers, we protect confidence in our system of commerce.”

Lily booked 60,000 advance orders at $499 to $899 each. Gascón’s office obtained an order from a judge requiring the company to return all the money it received from orders to customers and not use it for other purposes. On its website, Lily said it would automatically be issuing refunds to customers over the next 60 days.

The office said it was compelled to require Lily to use the advance-order proceeds for refunds after discovering that the company had used customer money to secure a $4 million bank loan. The suit also alleges that customers had “considerable trouble” requesting refunds and that Lily has “lost contact with a high percentage of its preorder customers.”

Reached at the company’s South of Market office, Lily co-founder Henry Bradlow declined to comment. The company did not mention the suit in a post Thursday, but said that it had been “racing against a clock of ever-diminishing funds” needed to manufacture and ship its first products.

Dominic Fracassa is a San Francisco Chronicle staff writer. Email: dfracassa@sfchronicle.com Twitter: @dominicfracassa