Washington State Files First Consumer Protection Lawsuit Against Kickstarter Project That Failed To Deliver

from the don't-kickstart-if-you-don't-plan-to-deliver? dept

I've backed a few dozen Kickstarter projects over the years, and there have always been questions about possible fraudulent projects. While I've personally found that nearly every project delivers late (often very, very late), I don't think any of the projects I've backed has completely failed to deliver (there are a couple I'm still waiting on, though...). Still, the risk of such a "default" is always a possibility, and that's always been the case. Backing a product at an early stage always comes with the risk that it may never deliver. Kickstarter itself has tried to do a better job in making people aware of this upfront with its "Kickstarter is not a store" claims.

However, Washington State's Attorney General has decided to file a consumer protection lawsuit against one project that failed to deliver.
The state’s top lawyer, Bob Ferguson, said Thursday his office has filed the first consumer-protection complaint in the U.S. to target a Kickstarter fraud.

The lawsuit alleges Edward Polchlopek III and his company, Nashville, Tenn-based Altius Management, in 2012 raised more than $25,000 from 810 people in order to print a deck of “retro-horror”-themed cards designed by a Serbian artist.

Among those backers were 31 living in Washington state, according to the suit, which was filed in King County Superior Court.
As the actual filing notes, two years later, nothing has been delivered and no money has been returned. Rather than just seeking the return of the $25,000, the lawsuit asks for $2,000 per each backer, meaning that Altius Management may be on the hook for a potential $1.6 million.

I'm a bit torn about this. As the lawsuit points out, under Kickstarter's terms and conditions, project creators "are legally bound to fulfill backer rewards if funding is successful." And going after actual fraud seems like a good thing. But there's also a risk here. Any project might not get completed for any number of reasons -- sometimes beyond a project creators' control. In fact, we've had stories of failed Kickstarter projects.

This is the nature of innovation. An idea is great, but execution is the really challenging part, and almost everyone underestimates the importance of execution. That's one of the clear risks in both creating and backing a Kickstarter project. While it seems reasonable to go after clear cases of fraud -- in which the creator had no intention to ever deliver a product, it gets a lot more complicated in cases where unforeseen circumstances resulted in the project falling apart. Should projects that discover too late that their plans were too ambitious also face the risk of millions of dollars in liability? Such a threat could cast a real chill on the crowdfunding space that has been so important for so many.

So while I think fraud charges may be appropriate in extreme cases, where it can be shown that there was never any real intent to deliver a product, there is a real risk that these could spread to the other kinds of cases, where it was just a botched execution -- and that could really do a lot of harm to an important emerging market for creativity and innovation.

Filed Under: bob ferguson, crowdfunding, edward polchlopek, fraud, scams, washington
Companies: altius management, kickstarter


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  1. identicon
    Devils Advocate, 30 Oct 2014 @ 1:46pm

    Re:

    I think if a project creator doesn't want to be on the hook for refunding for a failed project, they need to make it ultra clear in their pitch, that they are not able to guarantee a final product, and accurately explain issues that could prevent them from it.

    Its not fair to pitch as something that will come for sure, if its not a sure thing.

    A LOT (every one I have seen?) of Kickstarters are pitching with what seems to be 100% certainty of not only delivering a product, but delivering it on time (which basically never actually happens).

    There is a spot in projects to list 'Risks and challenges'. If you're project fails or is delayed for a reason that isn't listed in this section, I feel this mistake is on you. You should have been able to at least have the foresight of knowing where potential issues will crop up.

    I think if project creators were more honest with the current place the project is, and what needs to be done, they may get less backers, but in the long run the transparency can only help to legitimize crowd funding.

    For example, I have backed a project that was supposed to ship in July. The project pitch makes it seem like the product was fully designed and just needed tweaks. The project has CONSTANTLY been pushed back, and is currently projected for about a year late (july 2015). The current 'delay' is completely redesigning the product. No where in the pitch was it mentioned this would need to be done. In fact, it was implied the design was basically already decided on, and manufacturing and tech was what was left.

    I don't feel delays like this are in the spirit of the crowd funding movement. Had they pitched the project in the state it was actually, with a more reasonable time table, I imagine they would have made much less then the $200+k they made.

    At the very least, if a project gets delayed for a significant time, for a reason that was never brought up as a possibility, I think a refund should be offered. Maybe they should have the option to reopen the KS for new funding, with revised expectations, to offset the cost of paying refunds to other backers.

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