Crowd Funding - Kickstarter / IndieGoGo Pitfalls

[Teken]

With the advent of crowd funding there has never been a better time to take that unique idea and make it a reality. There have been so many projects that would have never seen the light of day with out such a medium.

 

Unfortunately there have been many cases where people have taken advantage of end users and offered vaporware and taken the money and run. As a side hobby I've tried to track some of the biggest scams inflicted upon the backers.

 

In no specific order of importance here are some of the biggest scams to date.

 

NOTE: It should be noted anyone even considering backing any sort of crowd funding should have both eyes wide open and expect a loss. If you invest your children's university funds that makes you stupid. If on the other hand you invested what amounts to a few bottles of wine its simply lost money.

 

Lastly, its been really great to see the Government stepping up to prosecute those who intended to fleece the consumer from the onset.

 

 

 

OREGON OPENS OFFICIAL INVESTIGATION INTO KICKSTARTER SWEETHEART COOLEST COOLER

By Anthony Thurston —  October 4, 2016 5:31 AM

 

 

 

 

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The Oregon-based Kickstarter-backed company Coolest Cooler is feeling a little heat this week as the Oregon Department of Justice opened an official investigation into the company after receiving hundreds of complaints from Kickstarter backers who had yet to receive their coolers, despite the coolers being available online.

Coolest Cooler, in case you don’t remember, conducted a 2014 Kickstarter campaignthat pulled in a whopping $13 million in funding for the rolling party-cooler that came complete with a blender and other party conveniences. But things have not been great for the cooler company. All the way back in April the firm went back to its backers and asked for more money, asserting that the original price was too low to cover the units. Now, 5 months later, the company is receiving scrutiny from the Oregon DOJ as Kickstarter backers are filing official complaints because they have not received their coolers, despite the company offering the coolers on its website for $400 (and shipment within 48 hours no less).

Related: Coolest Cooler, Kickstarter’s most-funded project ever, is too broke to ship to backers

There is always a risk in backing a crowdfunded campaign. Sometimes you just won’t get what you hoped you would, but usually, the reason is that the product or idea failed in production. In this case, the product is out and available to those are willing to pay the full retail price now, while those who paid lower prices through the Kickstarter, enabling the firm to move to production, are only very slowly getting units sent out.

In its latest updates to the Kickstarter campaign the company says it is unable to send out the coolers to Kickstarter backers en masse because of cost considerations. Simply put, the company can’t afford to send them out. The Oregonian is reporting that the Oregon DOJ received some 300+ complaints regarding the Kickstarter-backed company, though Coolest Cooler says the number is closer to 200.

Part of the issue, the company notes, involves Amazon’s Launchpad program. Ryan Grepper, the founder and operator of Coolest Cooler, says the issue lies in Amazon’s decision to sell the coolers for a mere $205, despite promising not to sell them for less than the advertised retail of $400. This means that the company is making no profit on the coolers it is obligated to ship out, and the result is that the retail sales they are making now are being used to increase inventory and keep the company going so that the Kickstarter units can be sent out.

It is a sticky situation all around, and the Oregon DOJ investigation is only complicating things for the small company. For all the details and the latest updated news you can check out the Coolest Cooler Kickstarter page, here.

 

 

 

[Teken]

 

This multi-million dollar crowdfunding fail sounds like the plot for a bad movie

By Chris Smith on Aug 11, 2016 at 6:00 PM

 

 

The following story isn’t a script for a bad Hangover sequel, though Hollywood should definitely adapt it for the big screen.

Remember that incredibly cool motorbike helmet that took Indiegogo by stormexactly two years ago? The Skully AR-1 was supposed to be the coolest bike helmet ever, featuring an advanced heads up display complete with augmented reality (AR) elements. The company secured almost $2.5 million in funding via Indiegogo and an additional $11 million from investors after that.

 

Where did that money go? Among other things, it paid for expensive cars and trips to hot destinations, but also for personal expenses including rent, limos and strip club attractions.

Marcus and Mitch Weller are the two brothers who headed the company into filing for Chapter 7 bankruptcy, in spite of its tremendous crowd-funding campaign. The company did not disclose any information about their alleged wrongdoings while at the helm of Skully, but a lawsuit filed by a former assistant reveals a treasure trove of information about what went on.

The “unforeseen challenges and circumstances, beyond our control, made this effort impossible” the company mentions in its polite letter to backers is not at all what we have expected.

As detailed by TechCrunch, Jalopnik, and Droid-Life, to name a few of the sites that covered the scandal, the Wellers’ adventures on the backers’ dime sound preposterous.

 

The former assistant filed the suit because of wrongful termination and failure to pay overtime, among other things. But she also revealed that the brothers used the money they got to pay rent and security deposits to new apartments, weekly cleanings, grocery bills, all restaurant meals, but also personal tech including iPads, iPhones, TVs, watches, and GoPros.

 

That’s just the tip of the spending iceberg. They also purchased an Audi R8, two Dodge Vipers (one of them was involved in a crash and needed replacement), four new motorcycles, and $13,000 trips to Vegas. The brothers also paid for trips to Florida, last-minute first-class tickets to Hawaii, strip joints and limo rides.

 

They also paid $80,000 in cash to an unnamed co-founder, money that was hidden as expenses for a trip to China. In fact, the brothers “routinely demanded [the assistant that she] engage in fraudulent bookkeeping practices designed to defraud investors in Skully into believing that Skully funds were being used for business purposes, when in fact, the funds were being used to pay the personal expenses of the Wellers.”

 

Marcus Weller even made his assistant attend his driving school in his place. Weller was forced to attend it after receiving a traffic violation in that new R8.

So if you backed Skully by now you’re wondering how you can get your money back – that’s $1,500 per person, for nearly 1,000 people. The bad news is that you will probably not be able to do it because of that Chapter 7 bankruptcy filing.

 

However, there’s a company called Fusar that makes smart bike tools, and which is offering a credit equivalent for the whole amount you paid for the AR-1 helmet. The Skully Owners Stimulus (SOS) package will not let you spend all that credit at once, but you should be able to recoup the entire sum over time.

[bleepblorp]

Big fan of crowd funding, but agree there are risks. I did in fact back Coolest, but thankfully received mine without issue. I understand lots of people were not so lucky.

 

I do 'follow' a lot more projects than I actually back because of this.

[Teken]

Big fan of crowd funding, but agree there are risks. I did in fact back Coolest, but thankfully received mine without issue. I understand lots of people were not so lucky.

 

I do 'follow' a lot more projects than I actually back because of this.

 

Since you actually participated in the campaign can you offer some insight as to why you believed you got yours out of sequence and can you offer feedback as to did it meet the stated fit and finish?

[Ajax]

Yeah I try my best to stay off Kickstarter but I am a little addicted to new tech I think. So I tend to back things when I am there...I have been burned with only 1 "Ownphones" out of the 20 or so projects backed. But then again some of them still promises to deliver going on a year past due date...

[Teken]

It really comes down to *How much can I afford to lose* and if you did your due diligence. Most times there is no way to confirm if a person is sincere vs where they are in the development of said product. A perfect example is this induction hot water cook top which seems to be over stated in design and concept.

 

I was pretty lucky in the fact after reading some of the comments it was apparent what the company portrayed in the video was no where near from having a working piece of hardware.

 

https://www.kickstarter.com/projects/747044530/miito-the-sustainable-alternative-to-the-electric/comments

 

In this case the whole under promise over deliver was not the mentality vs lets over state and under perform. 

[bleepblorp]

Since you actually participated in the campaign can you offer some insight as to why you believed you got yours out of sequence and can you offer feedback as to did it meet the stated fit and finish?

I backed the project fairly early so I think it is possible I had my order fulfilled in sequence, but I don't have anyway to validate that really. Do you know if the number of unfulfilled orders has been publicized? Just curious how many have been left out so far.

 

As for the cooler, it rocks. Haven't been disappointed with it at all. I did order a second battery after the fact and that arrived and met expectations as well.

[Teken]

I backed the project fairly early so I think it is possible I had my order fulfilled in sequence, but I don't have anyway to validate that really. Do you know if the number of unfulfilled orders has been publicized? Just curious how many have been left out so far.

 

As for the cooler, it rocks. Haven't been disappointed with it at all. I did order a second battery after the fact and that arrived and met expectations as well.

 

No, can't say how many have been filled since the campaign started. If anyone takes the time to read the links you will see there were a few issues going on here. Some got the cooler ahead of say person 1000, and they were 5000. While others got theirs quicker also because they fell for *We need more cash* and thus those who paid extra did / didn't receive it.

 

Then, you have the whole *Punch you in the face* of the same product offered and cheaper on Amazon.

 

I honestly can't think of another scenario where offering something first to a 3rd person for less is not going to chaps someones aszz!

 

Can you imagine you backed a company to help them bring to market an idea. Only to see the same item being sold on line for less and those people got it before you? Never mind even knowing if you will ever see a product you helped get off the ground?

 

That my friend is just shady and puts you in the same category as scum. 

[TheFallenAngel]

Well I've backed about dozen or so projects, and I am very happy with what I've got! Still waiting for 3, two if them month page but close (which is normal in those campaigns and always should be expected)..

 

I've also followed few projects or of curiosity (without backing then) one was a device like Alexa, no, rather voice controlled HA controller.. Looked amazing in every way and had a stunning app shown (in prototype). Sadly that one failed they reimbursed their backers of course..

 

Cheers,

Alex

[Teken]

Yes, many of us have dipped our toes in the crowd funding and for the most part for me at least. Its been a very positive experience because all of us had a opportunity to bring to market the next great thing. Besides that it was having the ability to shape how a product looked or was capable of doing various things.

 

It should be noted there is a huge distinction between something that is truly a scam vs something that fell apart. Companies like Apple to Xerox have all failed on something so its not a big surprise if a start up fails or sees more delays than expected. What surprises me more than anything is how almost 99% of these companies just go into radio silence?

 

Like offering no feed back to the supporters is going to help your cause?

 

Many of us old enough know *Doubt Kills* so anyone who ever see's a lack of feed back should consider this the first red flag.

[Teken]

This article was already posted here by me but it affirms backers do in fact have rights.

 

http://www.seattlemet.com/articles/2015/10/30/washington-state-sued-a-failed-kickstarter-project-and-won

 

 

 

Washington State Sued a Failed Kickstarter Project and Won How a landmark Washington lawsuit could change the future of crowdfunding.

• BY 
• JASON COHEN
•  
• 10/30/2015 AT 8:00AM

58

“KICKSTARTER IS NOT A STORE,” the crowd-funding website’s founders infamously declared in 2012, when questions first arose about the rights of users who give money to failed projects. Even so, Kickstarter’s terms of use say that creators who cannot complete their project and deliver its rewards are supposed to offer refunds and might be subject to legal action if they don’t. 

In May 2014, Washington attorney general Bob Ferguson took them at their word and filed suit against Asylum Playing Cards. The 2012 Kickstarter campaign to fund a set of horror-themed playing cards stopped posting updates a year earlier. Asylum had taken in $25,146 (exceeding the campaign’s $15,000 goal) from 810 backers, 31 of whom were identified as Washington residents. And what Ferguson called “the first enforcement action in the nation against a crowdfunded project that didn’t follow through on its promise to backers” succeeded this July, netting restitution for the Washington-based donors and slapping Asylum with $31,000 in civil penalties. The question now is what precedent the first-of-its-kind ruling will set. 

“I wouldn’t say that every single time a Kickstarter venture fails it’s a Consumer Protection Act violation,” says Shannon Smith, the Washington attorney general’s Consumer Protection Division chief. But, she adds, “I think you will be seeing more enforcement actions against entities that are using the Kickstarter platform.”

Perhaps not coincidentally, the 2012 Kickstarter for Clang, Seattle author Neal Stephenson’s realistic sword-fighting video game that raised $500,000 before flaming out, began offering refunds to backers who requested them a few months after Washington filed its Asylum suit. 

“There’s risk inherent in creating anything new, and some projects that successfully raise their goal won’t come to life,” says Kickstarter spokesperson Justin Kazmark. “But creators who abuse our system and backers’ trust expose themselves to legal action.” In other words, government regulations could make crowdfunding more reliable, but people who support projects have to remember it’s called Kickstarter, not Kickfinisher.

“By their very presence, these projects suggest financial risk,” says Bryan Adamson, a professor of consumer protection law at Seattle University. “Don’t invest if you are risk averse.” He adds that it’s important to do the thing you never do with iTunes or Facebook: Read the terms and conditions, and also the proposal’s details. Because while taking a chance on unique projects produced outside of the traditional commercial machine is part of the appeal, it can also be part of the heartache.

[Teken]

 

 

Feds take first action against a failed Kickstarter with $112K judgment Designers of The Doom That Came To Atlantic City moved on, fulfilled orders.

JOE MULLIN - 

6/11/2015, 10:41 AM

These pewter miniatures were promised to those who contributed at least $75 to the project.

FTC v. Erik Chevalier complaint

 

The Federal Trade Commission has taken its first-ever action over a crowdfunding project, finding that its creator used "deceptive tactics" by raising more than $122,000 to create a board game—and then spending the money on things like rent, moving to Oregon, and personal equipment.

Erik Chevalier, who has settled the case, raised the money from 1,246 backers. He promised he would produce a board game called The Doom That Came to Atlantic City, and the campaign came to a successful conclusion on June 6, 2012. According to the complaint (PDF), 85 percent of the backers had pledged $75 or more, the level required to get the pewter miniatures promised backers of the project.

He blew the original deadline of November 2012. Sporadic updates, still available on the project's Kickstarter page, were published between June 2012 and June 2013 explaining the delays and promised that the game was still in production.

On July 23, 2013, Chevalier canceled the project.  “After paying to form the company, for the miniature statues, moving back to Portland, getting software licenses and hiring artists to do things like rule book design and art conforming[,] the money was approaching a point of no return," he explained. The post continued:

Suffice to say that I never gave up and always intended to get this project printed. My intentions have always been good and I've struggled with this greatly. I've spent a large amount of time pitching investors, begging banks for loans and seeking other sources of funding to fix this. Sadly I found no takers.

FTC lawyers claim that in reality, Chevalier never hired artists and "instead used the consumers’ funds for miscellaneous personal equipment, rent for a personal residence, and licenses for a separate project."

The settlement order imposes a $111,793.71 judgment, but it's suspended due to Chevalier's inability to pay. "The full amount will become due immediately if he is found to have misrepresented his financial condition," the FTC writes in today's statement on the case.

Chevalier is also barred from any "deceptive representations related to any crowdfunding campaigns in the future," and must honor any stated refund policies. (On Kickstarter, he said he hopes to "eventually refund everyone fully.")

The Doom That Came to Atlantic City was ultimately made available, just not by Chevalier. After the cancellation, the rights to the game and figurines went back to the designers, who were able to link up with Cryptozoic Games and get the game produced. Cryptozoic agreed to fulfill the orders of the Kickstarter backers at its own expense, and sent the games out in 2014.

Chevalier, whose business' name is The Forking Path Co., didn't respond to requests for comment sent through his website.

"Kickstarter creators have an incredible track record when it comes to following through on their promises," said Kickstarter spokesperson David Gallagher. "But creators who abuse our system and backers’ trust expose themselves to legal action. That another creator stepped in to produce this game and get it into the hands of backers is a testament to the goodwill and spirit of the Kickstarter community."

While this is the first time federal authorities have taken action over a crowdfunding campaign, consumer protection authorities in Washington state filed a lawsuit over an undelivered Kickstarter last year. The state attorney general sued Ed Nash and his company for failing to deliver its promised Asylum Bicycle Playing Cards, a "retro-horror themed playing card deck."

Correction: An earlier version of this story said the game "never got sent." Cryptozoic produced the game and sent copies to Kickstarter backers in 2014.