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
    Avatar, 5 May 2014 @ 3:57pm

    The issue here is that if the transaction looks and smells like a sale, the court is going to rule that it was a sale.

    Nobody made you model your stretch goals. You can raise all the funds you like so long as you don't promise to deliver merchandise in exchange. Once you've raised your vig, there's nothing keeping you from giving all your backers a sweet deal on the product that their cash enabled you to develop.

    But if you say "give me x moneys and I give you y stuffs", you are selling things. The fact that you don't actually have the things yet is not germane to the fact of the liability. You can't even say "sorry, I blew it, here's all the money back" - you're still liable for the costs other parties are put to, though in practice the difference is so small that it ain't gonna make it to a court. (Maybe if you're kickstarting hundred million dollar yachts.)

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