Tobold's Blog
Friday, June 12, 2015
Kickstarter fraud

The US Federal Trade Commission (FTC) for the first time got involved with a Kickstarter campaign, finding that the person who ran the crowdfunding campaign "never hired artists for the board game and instead used the consumers’ funds for miscellaneous personal equipment, rent for a personal residence, and licenses for a separate project.". Well, obviously that is good news if there is somebody watching out for consumers against such fraud. Although I'd say that the fraudster got off extremely lightly: While he settled with FTC on paying the money back, that payback is suspended because of his inability to pay. Other than having to promise not to lie next time, nothing happens to him. Not exactly a huge win for consumer protection. Not sure it will actually discourage anybody from trying something similar.

Fraud is mostly a matter of intention. While the FTC might come after somebody for fraud, they won't sue somebody for being an idealistic idiot with no clue in project management. Which is probably a fair description of most cases of failed Kickstarter projects. That is somewhat unfortunate for the consumer, because for the consumer the results of fraud and of incompetence are pretty much indistinguishable. You're out of your money and didn't get the game you funded.

I wonder if Kickstarter would still work if there were no backer rewards. What if the project creator could *not* promise you a free copy of the game and other rewards in return for your donation? What if it was, *gasp*, an actual donation, with no strings attached? Before you say that this would never work, think about the consequences: If we say that a Kickstarter project could not possibly be financed by real donations, but has to have an element of pre-purchase, then is a Kickstarter project a campaign for donations at all? Or is it rather some sort of sales agreement, which would necessitate far better consumer protection than we currently have?

There are no consumers on Kickstarter.
The FTC obviously begs to differ on that.
The whole "pay it back when you feel like it" settlement for what amounted to embezzlement kinda indicates they know they are on shaky legal ground.
What you describe in the last paragraph sounds like Patreon to me.
Well, it certainly looks like fraud. According to the article, they claimed they hired staff, etc. but apparently did nothing of the sort, pocketing the money instead.

But on the plus side, the game DID get made. Backers got a copy. Just not by the original company. I have to assume the advertising and buzz created by the kickstarter was instrumental to that.

Should Kickstarter be liable? No. I think not. It's true that they pocket a pretty penny, and have every incentive to have campaigns go through the roof, but unless it can be demonstrated that they knew a campaign was fraud in advance, they aren't the culpable party.

Kickstarter is also not responsible for underwriting the projects they present. This is straight up between the backers and the project starter. This also means they are not responsible for vetting the project starter to ensure they have the means and wherewithal to follow through.

I think the vast majority of the time, backers do it because they want the promised items, but aren't so naive that they think there is a contract with a delivery guarantee clause. Nor do they think they are "investing" in the company in the context of a return on their part. It's a donation, you're not buying a stock.

All that said, Kickstarter is awesome. It's a grass roots, organic way to get attention and possible funding for your project without the brutal overhead of "Vulture Capitol." However, I think there is a journalistic responsibility to never do things like use the word "kickstarter" and "investment" in the same sentence unless to point out that it is NOT an investment and you may not get the items you desire.

So. Calling it a "donation" isn't completely accurate, as people want the item and only a fraction would do it solely out of the goodness of their heart. These guys got into trouble not because they failed to deliver, but because they didn't try as hard as they said they were trying. Hence, they lied. And that lie constituted fraud against some or all of the backers.

But what about people that actually believe they are "investing" and are owed a result? Well, they can start a class action lawsuit or otherwise take legal action, but the onus of paying for that will fall onto them.

I do not want to see fraudulent or "money grab" kickstarters, but at the same time, I don't want to see innovation squelched by an over ambitious effort to "protect the poor consumers."
I've donated to lots of things that had no reward other than a thank you. And there are plenty of projects and such like that out there. They just aren't very prominent on kickstarter and especially so in the video game category because giving your backers a copy is essentially free.
I'd say most people treat KickStarters as a form of extreme pre-ordering. You pre-order something that's not even being made yet! And sometimes (for extra money!) you get Early Access as well!

It's an investment. And the return is the completed product. Problem is, investments carry risk....
It doesn't matter if you see kickstarter as donation, investment or expecting a reward. Fraud is fraud however the circumstances and it is good that it's punished.
I still say you're donating your money for a promise, which means risk is associated, huge risk at that. I will say what the company did was morally wrong but the kickstarter backers shouldn't be just throwing their money away and expect the promise to be made, I mean you donate after-all.

If anything the real consumer protection comes from the consumers not throwing away money on untrustworthy devs. I fear that the more the government gets involved with things such as kickstarter the more they'll regulate it causing it to not be worth the risk for companies who do wish to seek outside donations.
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