Why Kickstarter is ripe for scams
On July 31, 2011, Joe Taylor and his colleagues at ZionEyez successfully raised $344,000 to fund the development of a new pair of eyeglasses that could supposedly record high-definition video and stream it directly onto your Facebook account.
The team promised a pair of those eyeglasses to any backer who pledged more than $150, all of which were to be distributed by the winter of that year. Fast forward to June 2012, backers have still found no trace of Taylor or anyone responsible for the development of the ZionEyez glasses.
The team effectively made off with $344,000 of crowdfunded money—split from the scene without a single trace or a single line of recourse for the project’s 2,106 backers
What's worse is that Kickstarter, the governing body that hosted the campaign and helped facilitate the fundraising of all this cash, had taken itself out of the conversation (presumably after collecting its 5 percent share for successfully funded campaigns).
“All dealings are solely between Users. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party. This includes, but is not limited to, delivery of goods and services, and any other terms, conditions, warranties, or representations associated with campaigns on the Site. Kickstarter does not oversee the performance or punctuality of projects.”
Such verbiage left ZionEyez’s backers completely in the dark as to when or if they'll ever receive compensation for their pledges and without any help finding any answers.
It also raised an interesting question: What happens when a project creator hosts a campaign with the sole intended purpose of ripping its backers off?
While instances of Kickstarter scams are still somewhat scarce, ZionEyez's story proves that the potential exists for a massive outbreak of unfortunate instances in which project creators run off with cash raised on an empty promise. All it takes is a decent idea, a convincing sales pitch, and a reward system that looks like it's been arranged in earnest—the new pyramid scheme.
Once the money's raised, there's little in the way of obligations that tie the project creator’s promise to the backer’s expectation. It's essentially a system founded on good samaritanism in an online community growing leaps and bounds every day.
Such good samaritanism doesn't do much good when a project creator is resigned to setting off with a scam project. And if Kickstarter's sympathy towards backers consists of little more than saying "you entered into this arrangement on your own accord," the issue becomes a question of what backers can do to properly respond to scammers.
The short, unfortunate answer: not much.
"Crowdfunding is a double-edged sword," said Dan Churgin, an associate attorney at New York City's Bolan Jahnsen Reardon law firm. "On one hand, it sets forth the very standard and stable environment for projects to get funding. On the other, it really neuters the rights of the backers."
Churgin said that Kickstarter's lengthy Terms of Service stipulations make it difficult for backers to pull off any sort of funding recovery operation should the creators of a project they backed decide to run off with the earnings. It's unfortunate and borderline unethical, because it's Kickstarter's payment processor, Amazon Payments—not the backers—that holds all the information that keeps project creators accountable, information such as social security numbers, bank account information, and drivers licenses that would help backers track down the project creators.
"Kickstarter does a good job of insulating themselves in a number of ways," he said.
"When you have a group of backers, there are problems in terms of getting your money back. It makes sense to do things in a class action manner to go after your money, but class actions are very expensive.
"There are procedural hurdles and it makes sense to get all of the plaintiffs together and have representation on behalf of all the plaintiffs. Any time an attorney gets involved on behalf of a plaintiff with a claim, right there you are looking at a third of the money that you're going to get back."
That's a tough pill to swallow for backers who put up $150 for a pair of eyeglasses. If the attorney's already taking a third of the winnings, that cuts out a significant portion of the money that the backer was initially hoping to recoup. More difficult to swallow is the notion that it would take the entire community of spited backers to launch a legitimate case—a tall order when you consider that backers of the project could come from as far as Europe and Hawaii.
Churgin's only reasonable tactic: finding an attorney in the backing bunch and use them to mount the case.
"He or she would have the resources at their disposal to come up with a class interest form," he said.
“There may be those people out there. But for the average backer who's giving $150, it's almost not worth it to get involved in this. It's such a time consuming and difficult process. You're going to have whole evidentiary hearings on how similar all of the claims are before you have an evidentiary hearing on whether or not the project ripped off the backers.”
That's why backers like John Foster and Bill Walker have resigned themselves to "crowdbitching" on Walker's ZionKick site, a website he created in an effort to shed light on the ZionEyez scam.
"We as backers need to find a way to come together and make our complaints heard," Walker said from his home in Hawaii. "They got us through the crowdfunding thing. That's how they hooked the fish. Now the fish need a way to fight back."
But Walker and Foster can only suggest that Kickstarter do a better job vetting projects before they meet approval, a process that requires added bandwidth within the Kickstarter office to give proposals a closer look.
"I can't see Kickstarter wasting any of their money to make that happen," Foster added. "I can't even see them funding a summer student intern to do it.
"Kickstarter has no upside to spending any money on accountability."
And thus, Kickstarter's money saved becomes a community of backers's money lost—with no method of protocol to make that money back. (Kickstarter did not respond to requests for comment.)
"Any civil litigant is going to have to worry about collectability," Churgin said when asked about how that process could take place. "If you sue an insured defendant, you don't have to worry about that. But you have to worry about the people who posted the project and also find out where they're holding their assets. That becomes a very difficult process in and of itself."
Those hurdles are what's keeping Kickstarter from becoming a completely reliable crowdfunding platform, and until the company accepts a greater deal of accountability, the community remains an unkempt jungle.
That means it's only a matter of time before the Nigerian princes start showing up with the promise of diamonds and brides.
Correction: A previous version of this story stated that Kickstarter stored project creators' information. That information is actually stored by Kickstarter's payment processor, Amazon Payments.
Illustration by Matt Sisson