7 ms·

The problem here is that Kickstarter is complicity allowing this sort of scam-project* to run. They're not stupid. They know this is happening, and they're _ho

The problem here is that Kickstarter is complicity allowing this sort of scam-project* to run. They're not stupid. They know this is happening, and they're _hoping_ that it'll all magically sort itself out; that people will be smart enough _not_ to believe in the $50-you-get-a-lamborghini pledges. I mean, it's a great scam right? If you're a con artist, you make your money in one of two ways; 1) Steal someones money and make them too embarrassed to do anything about it (classic porn on the credit card) 2) Steal a little bit of money from a lot of people, all of whom can't be bothered to do anything about it. <--- Kickstarter. Realistically, this is going to continue until someone sues Kickstarter for being complicit in mail fraud. That'll be a sad day, but you can already see it coming on the horizon. * Actual project may not be a scam, but honestly there's not a huge difference between a poorly organised project that takes everyones money, tries to make something and fails, and an actual scam. If you're selling something, you're a merchant. There are laws around that.

JoeAltmaier 14y ago
Scam implies some sort of intent. There's actually a huge difference. When burned, you might call someone a dipshit. But to actually BE a dipshit, their intent matters.
- shadowmint 14y ago
  Intent is difficult to measure. Money on the other hand, is very easy to measure. So are your legal obligation as a merchant. If you sell something online, and the person on the other side never receives it, that's mail fraud. No matter what your intensions were. caveat: As a merchant you also have legal protections in this case, which is where refunds, reshipping, etc. come in.
  - regularfry 14y ago
    The get-out, of course, is that neither the projects nor Kickstarter are actually selling anything.
    - stephengillie 14y ago
      While they "technically" receive a donation from you and send you a gift, I think most judges would see an exchange of money for an item and say that somebody definitely is selling something.
      - JoeAltmaier 14y ago
        NPR gave me a coffee mug for my donation. Were they selling it?
        nirvdrum 14y ago
        Partially. I'm pretty sure if you write-off that donation you need to subtract the fair market value of that mug. A real accountant could speak better to that though.
        molsongolden 14y ago
        This is how it's supposed to work. (accountant)
      - wpietri 14y ago
        I see it as a donation to an entrepreneur, artist, or other innovator. I sometimes turn down the rewards. And I'm always offered the option to do so. Which means it's definitely not a normal for-sale arrangement. Who would order something from Amazon and then check a box saying, "Oh, just charge my card; don't actually send anything"?
    - cdmoyer 14y ago
      See my post above though, even Kickstarter's Guidelines say there is a legal obligation to deliver.
    - larrys 14y ago
      "are actually selling anything" As others have pointed out they are selling something. Nothing indicates that you can get the "thing" simply by sending an entry to the address and there is no obligation to buy anything. As happens with contests that don't want to appear to be a lottery. In other words you can't have someone pay for a chance to win something (in many legal jurisdictions particularly in the US not sure about anywhere else). But you can have people both buy things and enter with a very clear "no obligation to buy" as we have all seen (once again in the US). So it is very clear and obvious that in exchange for paying money you are expecting to receive something in return. Now of course they could probably work around this with the proper wording somewhere. "We hope to produce this lightbulb. There is no guarantee we will succeed. Here is a complete list of our qualifications. Be aware that if we fail to deliver you will loose your money. Here is our record with other projects. Etc." In that case the "game" becomes a little different and it is apparent and visible that you stand to loose just like paying to enter a marathon you pay money and are not guaranteed to win. (Not a great example but anyway..)
  - JoeAltmaier 14y ago
    I understood mail fraud did NOT cover electronic sales...
shardling 14y ago
Kickstarter is not in some bizzarro pocket universe where the normal protections against fraud don't apply. If someone truly takes the money and runs, that's a criminal offense. Kickstarter doesn't need special policies to make it so, and I'm sure they'd cooperate with a criminal investigation. I think they've even said as much!
- xefer 14y ago
  I'm not sure it's fraud per se. Kickstarter seems like a way of monetizing up-votes. They have various sized up-arrows that are tied to a bucket of electronic chits over a PayPal. I sometimes wonder if people back projects with the same forethought they bring to up voting a good story.
  - speg 14y ago
    I think that's exactly what the $1 pledge is for.
- DanBC 14y ago
  Really? (http://www.kickstarter.com/projects/schuyler/lockpicks-by-open-locksport http://www.kickstarter.com/projects/schuyler/lockpicks-by-op...) Wanted $6,000; got $87,000; completed funding in sept 2010; backers still waiting. Cheapest pledge to get product was $20. Someone else has taken on the project. A few people have got "practice sets", but that's not what they wanted. They wanted the picks.
  - shardling 14y ago
    You present that like it's contrary to my point, but it's not. If legal action had been attempted and failed, that would be interesting! But here there's no indication that the matter has been brought before a court.
  - abraham 14y ago
    It doesn't sound like they took the money and ran. It sounds like they took the money and are having a lot of problems executing.
lifeisstillgood 14y ago
I do not think Kickstarter projects can be viewed under legal framework of merchants and consumer protection. A project much more like an investment prospectus than it is a sales offering. So I would be interested in knowing if the SEC has already had a look at the Kickstarter legal setup, and if not, it may well be the next step (ie not suing Kickstarter, but refering them to SEC) The laws around prospectus and offerings are setup very explicitly to avoid your situaton 2) - so I would be very surprised if kickstarter projects are not somehow explicitly avoiding those regulations - or if they are in fact compliant
- cube13 14y ago
  Kickstarter is not an investment. You're buying the rewards for the tier that you choose. In the Kickstarter TOS, there is the following line: Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.
- wpietri 14y ago
  Nope. Investments mean you own a piece of the business. Kickstarter doesn't allow that. Legally, Kickstarter is just a channel for contributions. If you want, and if the project offers it, you can sometimes pre-order goods in exchange for your contributions. But you get no interest in the business beyond your pre-order, so it's not a security.
- AJ007 14y ago
  The worst case for kickstarter is that they fall under both consumer protection laws and investment regulations. There is no question that they fall under consumer protection laws, products are being advertised and offered, and anyone can "buy" them. I'm sure the FTC already has an open investigation or investigations. If you create a kickstarter project, pull in $1m+, spend it all legitimately and fail to deliver the project, you could end up being named in a civil suit. In the future there will be people who lose their houses over this. Just because you made the project in 2011 doesn't mean you won't get sued in 2014. If you create a kickstarter project, pull in $1m+, spend it all illegitimately, on personal expenses, expect to go to jail. I predict this will happen to at least 1 person. The larger question to me is what liability kickstarter themselves have. Whatever that amount ends up being, I think they can absorb it as a cost of doing business, as long as it remains on the civil side of the law. I like kickstarter. So far I've stuck to using it for pen and paper RPGs, something I know can be delivered on. I think the core concept around kickstarter is going to radically change the world of consumer products. Its just too new to have much of a reputation system yet (but its coming.) May be kickstarter isn't the facebook/google of pre-funding projects. If they look like they are going to take a big hit, be ready to step up. As someone who designs business projects the whole thing sounds like a personal nightmare to me. I know first hand how the simplest of projects on paper can take 5-10x longer than estimated to complete. Add in bells and whistles to make it look attractive to a bunch of people, ouch. Easier said than done applies very much here.
cdmoyer 14y ago
This comment stuck in my craw a bit, and I'm trying to disect the comment and why it bothered me. I have backed several kickstarter project, received the results of a couple, funded a project via kickstarter and promoted several projects. You could say, I'm a fan of the kickstarter model. On the other hand, I've been predicting that one of these high-profile (likely physical hardware) projects in going to dramatically fail, and then we'll see the fallout. I guess what stuck in my craw is "complicity allowing this sort of scam-project". Mainly because this feels like an unwarranted accusation. To try and reassess my feelings, I visited the Kickstarter page to read the copy and get a feel for how protective they are of the backers. How it Works "Every project is independently crafted, put to all-or- nothing funding, and supported by friends, fans, and the public in return for rewards." (Ok, so, explicitly stating that the funding is in exchange for rewards.) "The filmmakers, musicians, artists, and designers you see on Kickstarter have complete control and responsibility over their own projects." (Ok, this suggests that kickstarter isn't guaranteeing success... but does feel more like ass-covering.) "Rewards are things like a copy of what's being made, a limited edition, or a custom experience related to the project. This isn't Best Buy — rewards aren't shrink- wrapped and ready to ship. Once the project is funded, the journey to bring them to life begins." (Another really... hedged statement. This just implies that it might take a while to get the rewards, not that they may not be delivered.) Clicking "Back this Project" on Lifx FREQUENTLY ASKED QUESTIONS Who is responsible for fulfilling the promises of this project? Kickstarter does not investigate a creator's ability to complete their project. The claims and responsibilities of this project are solely its creator's. (This is interesting, and prominent on the backing page.) Guidelines Are creators legally obligated to fulfill the promises of their projects? Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This[1] is what creators see before they launch.) We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill. (Now, that was really interesting to me, as I had never seen that. It's pretty explicit.) So, basically, whether kickstarter is complicit comes down to a couple questions in my mind: 1) How much responsibility do they bear to vette each project for likeliness of funding? 2) Are they messaging backers well enough about everybody's responsibilities in these scenarios? ... And I don't know the answer to either. The information is there on the site, but a little hidden and the recourse for failed projects seems non-existant. Most of these larger projects are new LLCs set up for the project, and if all the money is gone, suing them is likely going to be fruitless. (So... yeah, I've got no answers. Just some exploration.) [1]https://ksr-assets.s3.amazonaws.com/creator-responsibility.png https://ksr-assets.s3.amazonaws.com/creator-responsibility.p...
ChuckMcM 14y ago
Ok,so there is a difference when the person making the pitch really believes (perhaps foolishly) that they can do what they say they can. Its one of those "That doesn't look to hard ..." kind of situations. That said, investors do serious due diligence (usually) before investing and ask hard questions. We don't see those questions on Kickstarter so you cannot make a more reasoned choice about investing or not investing.
- adgar 14y ago
  Do you think that it is possible that the kickstarter model leads to press-than-sufficient sure diligence by lowering the barriers to investment that have traditionally driven larger investors to do more sure diligence? Is it possible that kickstarter might be predicated on lowering inhibitions to invest below the levels necessary to consistently make sound, rational judgments?
  - ChuckMcM 14y ago
    I think that the kickstarter model is below the legally viable laissez faire line, and the once the lawsuits start flying the party will be over. People will look back and say "What were they thinking would happen?" But that is just my opinion of where its going, it may turn out to be as revolutionary as eBay was in the casual sale market.
    - adgar 14y ago
      I've got the same opinion. It's amazing how so many entrepreneurs love the idea of crowdfunding their next project. They don't see how their crazy startup idea is just another insanely risky investment alongside scammers and people who have no idea what they're doing.

JoeAltmaier 14y ago

Scam implies some sort of intent. There's actually a huge difference. When burned, you might call someone a dipshit. But to actually BE a dipshit, their intent matters.

shadowmint 14y ago
Intent is difficult to measure. Money on the other hand, is very easy to measure. So are your legal obligation as a merchant. If you sell something online, and the person on the other side never receives it, that's mail fraud. No matter what your intensions were. caveat: As a merchant you also have legal protections in this case, which is where refunds, reshipping, etc. come in.
- regularfry 14y ago
  The get-out, of course, is that neither the projects nor Kickstarter are actually selling anything.
  - stephengillie 14y ago
    While they "technically" receive a donation from you and send you a gift, I think most judges would see an exchange of money for an item and say that somebody definitely is selling something.
    - JoeAltmaier 14y ago
      NPR gave me a coffee mug for my donation. Were they selling it?
      - nirvdrum 14y ago
        Partially. I'm pretty sure if you write-off that donation you need to subtract the fair market value of that mug. A real accountant could speak better to that though.
        molsongolden 14y ago
        This is how it's supposed to work. (accountant)
    - wpietri 14y ago
      I see it as a donation to an entrepreneur, artist, or other innovator. I sometimes turn down the rewards. And I'm always offered the option to do so. Which means it's definitely not a normal for-sale arrangement. Who would order something from Amazon and then check a box saying, "Oh, just charge my card; don't actually send anything"?
  - cdmoyer 14y ago
    See my post above though, even Kickstarter's Guidelines say there is a legal obligation to deliver.
  - larrys 14y ago
    "are actually selling anything" As others have pointed out they are selling something. Nothing indicates that you can get the "thing" simply by sending an entry to the address and there is no obligation to buy anything. As happens with contests that don't want to appear to be a lottery. In other words you can't have someone pay for a chance to win something (in many legal jurisdictions particularly in the US not sure about anywhere else). But you can have people both buy things and enter with a very clear "no obligation to buy" as we have all seen (once again in the US). So it is very clear and obvious that in exchange for paying money you are expecting to receive something in return. Now of course they could probably work around this with the proper wording somewhere. "We hope to produce this lightbulb. There is no guarantee we will succeed. Here is a complete list of our qualifications. Be aware that if we fail to deliver you will loose your money. Here is our record with other projects. Etc." In that case the "game" becomes a little different and it is apparent and visible that you stand to loose just like paying to enter a marathon you pay money and are not guaranteed to win. (Not a great example but anyway..)
- JoeAltmaier 14y ago
  I understood mail fraud did NOT cover electronic sales...

shardling 14y ago

Kickstarter is not in some bizzarro pocket universe where the normal protections against fraud don't apply. If someone truly takes the money and runs, that's a criminal offense. Kickstarter doesn't need special policies to make it so, and I'm sure they'd cooperate with a criminal investigation. I think they've even said as much!

xefer 14y ago
I'm not sure it's fraud per se. Kickstarter seems like a way of monetizing up-votes. They have various sized up-arrows that are tied to a bucket of electronic chits over a PayPal. I sometimes wonder if people back projects with the same forethought they bring to up voting a good story.
- speg 14y ago
  I think that's exactly what the $1 pledge is for.
DanBC 14y ago
Really? (http://www.kickstarter.com/projects/schuyler/lockpicks-by-open-locksport http://www.kickstarter.com/projects/schuyler/lockpicks-by-op...) Wanted $6,000; got $87,000; completed funding in sept 2010; backers still waiting. Cheapest pledge to get product was $20. Someone else has taken on the project. A few people have got "practice sets", but that's not what they wanted. They wanted the picks.
- shardling 14y ago
  You present that like it's contrary to my point, but it's not. If legal action had been attempted and failed, that would be interesting! But here there's no indication that the matter has been brought before a court.
- abraham 14y ago
  It doesn't sound like they took the money and ran. It sounds like they took the money and are having a lot of problems executing.

lifeisstillgood 14y ago

I do not think Kickstarter projects can be viewed under legal framework of merchants and consumer protection. A project much more like an investment prospectus than it is a sales offering. So I would be interested in knowing if the SEC has already had a look at the Kickstarter legal setup, and if not, it may well be the next step (ie not suing Kickstarter, but refering them to SEC) The laws around prospectus and offerings are setup very explicitly to avoid your situaton 2) - so I would be very surprised if kickstarter projects are not somehow explicitly avoiding those regulations - or if they are in fact compliant

cube13 14y ago
Kickstarter is not an investment. You're buying the rewards for the tier that you choose. In the Kickstarter TOS, there is the following line: Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.
wpietri 14y ago
Nope. Investments mean you own a piece of the business. Kickstarter doesn't allow that. Legally, Kickstarter is just a channel for contributions. If you want, and if the project offers it, you can sometimes pre-order goods in exchange for your contributions. But you get no interest in the business beyond your pre-order, so it's not a security.
AJ007 14y ago
The worst case for kickstarter is that they fall under both consumer protection laws and investment regulations. There is no question that they fall under consumer protection laws, products are being advertised and offered, and anyone can "buy" them. I'm sure the FTC already has an open investigation or investigations. If you create a kickstarter project, pull in $1m+, spend it all legitimately and fail to deliver the project, you could end up being named in a civil suit. In the future there will be people who lose their houses over this. Just because you made the project in 2011 doesn't mean you won't get sued in 2014. If you create a kickstarter project, pull in $1m+, spend it all illegitimately, on personal expenses, expect to go to jail. I predict this will happen to at least 1 person. The larger question to me is what liability kickstarter themselves have. Whatever that amount ends up being, I think they can absorb it as a cost of doing business, as long as it remains on the civil side of the law. I like kickstarter. So far I've stuck to using it for pen and paper RPGs, something I know can be delivered on. I think the core concept around kickstarter is going to radically change the world of consumer products. Its just too new to have much of a reputation system yet (but its coming.) May be kickstarter isn't the facebook/google of pre-funding projects. If they look like they are going to take a big hit, be ready to step up. As someone who designs business projects the whole thing sounds like a personal nightmare to me. I know first hand how the simplest of projects on paper can take 5-10x longer than estimated to complete. Add in bells and whistles to make it look attractive to a bunch of people, ouch. Easier said than done applies very much here.

cdmoyer 14y ago

This comment stuck in my craw a bit, and I'm trying to disect the comment and why it bothered me. I have backed several kickstarter project, received the results of a couple, funded a project via kickstarter and promoted several projects. You could say, I'm a fan of the kickstarter model. On the other hand, I've been predicting that one of these high-profile (likely physical hardware) projects in going to dramatically fail, and then we'll see the fallout. I guess what stuck in my craw is "complicity allowing this sort of scam-project". Mainly because this feels like an unwarranted accusation. To try and reassess my feelings, I visited the Kickstarter page to read the copy and get a feel for how protective they are of the backers. How it Works "Every project is independently crafted, put to all-or- nothing funding, and supported by friends, fans, and the public in return for rewards." (Ok, so, explicitly stating that the funding is in exchange for rewards.) "The filmmakers, musicians, artists, and designers you see on Kickstarter have complete control and responsibility over their own projects." (Ok, this suggests that kickstarter isn't guaranteeing success... but does feel more like ass-covering.) "Rewards are things like a copy of what's being made, a limited edition, or a custom experience related to the project. This isn't Best Buy — rewards aren't shrink- wrapped and ready to ship. Once the project is funded, the journey to bring them to life begins." (Another really... hedged statement. This just implies that it might take a while to get the rewards, not that they may not be delivered.) Clicking "Back this Project" on Lifx FREQUENTLY ASKED QUESTIONS Who is responsible for fulfilling the promises of this project? Kickstarter does not investigate a creator's ability to complete their project. The claims and responsibilities of this project are solely its creator's. (This is interesting, and prominent on the backing page.) Guidelines Are creators legally obligated to fulfill the promises of their projects? Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This[1] is what creators see before they launch.) We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill. (Now, that was really interesting to me, as I had never seen that. It's pretty explicit.) So, basically, whether kickstarter is complicit comes down to a couple questions in my mind: 1) How much responsibility do they bear to vette each project for likeliness of funding? 2) Are they messaging backers well enough about everybody's responsibilities in these scenarios? ... And I don't know the answer to either. The information is there on the site, but a little hidden and the recourse for failed projects seems non-existant. Most of these larger projects are new LLCs set up for the project, and if all the money is gone, suing them is likely going to be fruitless. (So... yeah, I've got no answers. Just some exploration.) [1]https://ksr-assets.s3.amazonaws.com/creator-responsibility.png https://ksr-assets.s3.amazonaws.com/creator-responsibility.p...

ChuckMcM 14y ago

Ok,so there is a difference when the person making the pitch really believes (perhaps foolishly) that they can do what they say they can. Its one of those "That doesn't look to hard ..." kind of situations. That said, investors do serious due diligence (usually) before investing and ask hard questions. We don't see those questions on Kickstarter so you cannot make a more reasoned choice about investing or not investing.

adgar 14y ago
Do you think that it is possible that the kickstarter model leads to press-than-sufficient sure diligence by lowering the barriers to investment that have traditionally driven larger investors to do more sure diligence? Is it possible that kickstarter might be predicated on lowering inhibitions to invest below the levels necessary to consistently make sound, rational judgments?
- ChuckMcM 14y ago
  I think that the kickstarter model is below the legally viable laissez faire line, and the once the lawsuits start flying the party will be over. People will look back and say "What were they thinking would happen?" But that is just my opinion of where its going, it may turn out to be as revolutionary as eBay was in the casual sale market.
  - adgar 14y ago
    I've got the same opinion. It's amazing how so many entrepreneurs love the idea of crowdfunding their next project. They don't see how their crazy startup idea is just another insanely risky investment alongside scammers and people who have no idea what they're doing.