I'm going to play devil's advocate because I both disagree with your premise and am a terrible person.

This is the first lawsuit filed against a Kickstarted project, and I'm sure you've noted that it's not filed against Kickstarter, for reasons we both probably see as obvious. I can't set aside the simple fact that there is absolutely no direct legal precedent for this case; while you can produce consumer protection torts until your eyes cross and I can offer banking vs investment defenses until mine do, this is up in the air enough that it's way too early to say we'll be seeing more of these. We'll have to see how the case (and then the likely subsequent appeal) goes to figure out if there will likely be more of these.

The reason I don't think that it's a slam dunk is that - despite what the OP has claimed several times - there is a pretty significant get-out-of-jail-free card in the Kickstarter Terms of Use which releases the project creator from any kind of timeline. Ask any bank anywhere how they'd feel about a loan with no timeline attached, and the answer would probably be unanimous. So while there *is* an avenue of legal approach regarding reasonable timeliness, it's not codified enough to make this easy. What if the project creator here appears, showing that half of the art has been provided and all the necessary pre-staging is done to allow printing once the art is complete? The lawsuit would then have to be directed toward specific performance against the project creator - because let's face it, I'm not seeing a Washington AG getting much done going after a Serbian citizen in his own country (that's not a random citizen, it's who's described as the artist in the Kickstarter).

I'm ambivalent about the venue and the defendant in this suit. While it's always good to keep something you like out of legal crosshairs, I feel like (in my non-lawyerly opinion) it would be vindicating to have KS receive the protection of a legal defense resulting in awareness of status as an investment platform - which it so obviously is, that it requires a legal system to make it otherwise. :P

I haven't looked into the details of the case enough to make much in the way of informed comments on its merits, and you certainly raise some valid points regarding issues the case may face. The point I would make, though, is that regardless of the outcome there will almost certainly be further legal action as a result. If the suit succeeds (and actually manages to claw back money from the person running the Kickstarter) then we'll probably be seeing other AG's launching similar suits. If the suit fails then we'll probably see either 1) new suits using different legal theories or 2) politicians looking to make a name for themselves by introducing legislation using the failure of these suits as an argument that current laws aren't enough to adequately cover crowdfunding. Basically I see this suit as a sign that dissatisfaction with certain elements of crowdfunding have moved beyond just people grumbling about it, and into the legal and political arena. And I see it unlikely that lawyers and politicians are just going to forget about it unless 1) crowdfunding platforms initiate measures to mitigate many of the current complaints about crowdfunding or 2) crowdfunding dies off enough due to people becoming disillusioned with it that no one really cares about it anymore. I'd personally consider the first option being greatly preferable to both crowdfunding dying and hamhanded attempts at government regulation, and I suppose that's my primary thesis here, that crowdfunding platforms need to become much more serious about providing better safeguards, or there will be significant pushback that would likely be quite bad for crowdfunding in general.

I wish I could disagree with this :P

As is probably pretty obvious from my posts in this thread, I believe there may be reason to consider crowdfunding an investment service. Of course it's not my call. I'm curious as to what sort of safeguards you think are best and/or most likely to keep this kind of lawsuit from becoming popular (well, within the confines of our insanely litigious system as it is). I can't offhand think of anything, because if this sort of lawsuit succeeds, then it becomes clear that the ambiguous contract into which creators and backers enter is somehow defined globally, which defeats any ideas I have that aren't "it's a risk. Deal with it." And if it fails, then I have no idea what the next avenue of approach is legally and thus cannot come up with countermeasures.

I had to give this a bit of thought, but here's what I came up with. I think the goals of such safeguards should be to 1) make it clear just what people are getting into before they donate money (right now it's too ambiguous), 2) keep the process transparent even after the money has been donated and the project is in full swing (lack of communication is a common theme with problematic projects), and 3) introduce some consequences if projects fail to meet the promised deadlines for deliverables (the amounts donated usually aren't enough to prompt legal action, but the feeling that people are getting away with things easily can be). I'm also trying to keep in mind that such safeguards would still need to be low on overhead to keep crowdsourcing viable, and would also need to not restrict those running the project too much or burden them with too many administrative concerns.

The first thing I'd propose is requiring all projects to submit a rough budget outlining how they intend to use the money they're asking for. This would accomplish two things. First, it would ensure that the people running the projects and the donors are on the same page with regards to what legitimate uses of the money are (no more people getting mad because it turns out some of the money is going towards food and rent- if it is to be used that way donors are told ahead of time and only donate if they're fine with that). Second, it requires the people running the project to actually give some thought to their budgets ahead of time, which I think will cut down on the cases of projects running out of money half-way through because the people running it didn't really think about just what the project involved and what it would cost. This also lets donors take a look at the proposed budget and decide if it seems reasonable to them (thus letting them better evaluate what they think the chances of the project completing are). Additionally, I think putting together a budget beforehand will promote the people in the project being more responsible with how they use the money, due to a psychological difference of viewing the money as being towards uses they already outlined, as opposed to it being viewed as a slush-fund.

The next thing I'd propose is splitting crowdfunding projects into two different tiers. The basic tier (let's call it the "Donation Tier") would function pretty similar to how crowdfunding currently functions with regard to oversight. Money is given to the people running the project as a lump sum and at that point the crowdfunding platform pretty much washes their hands of the project. However, a small but key difference would be that projects are not allowed to promise any rewards, and it is made abundantly clear the money given to these projects is a donation and nothing is promised or owed in return for it. The people running the project can still choose to promise or give rewards after the project is funded or completed, but it can't be part of the fundraising process. This would serve to better manage the expectations of those donating to such projects, and also make it clear just what they're doing with their money.

The higher level tier (let's call it the "Investment Tier", just not in front of the SEC), would incorporate greater oversight, balanced by hopefully giving donors greater confidence in the projects. Money raised for these projects would not be handed over as a lump sum, but would be kept in an account jointly accessible to both the people running the project and the crowdfunding platform, with the crowdfunding platform being able to remove money from the account or freeze it under certain conditions. Rewards could be offered for this tier, but all deliverables would need a due date to be set (completely up to the people running the project, but a signal to potential donors as to whether to fund the project). Finally, the person in charge of the project would need to provide full contact information (just to the crowdfunding platform, not donors), along with information necessary for a credit check (SSN in the US, whatever equivalent information is necessary in other countries).

Backers would receive updates on how much money had been used from the project account every 25% of the way towards the project due date (they wouldn't receive details on how the money was spent, it would be left to the people running the project what they wanted to communicate here). If the project passed its due date without delivering the promised results then backers would be given the option to request a limited refund on what they donated. The amount to be refunded would be defined by the people running the project during the funding phase- each deliverable (whether a digitally delivered good or a physical good) would be assigned a refund amount (recommended to be either the projected retail value or the donated amount, but ultimately completely up to the people running the project), and that's what could be requested for goods not delivered by the deadline. Any amount given in excess of the refund amount would be considered a non-refundable donation, and this would be made abundantly clear during the funding phase. Money to be refunded would be drawn from any money remaining in the project account. If the account ran empty 1) donors would be immediately notified and 2) the people running the project would be periodically invoiced by the crowdfunding platform for further requested refunds (if these amounts were not paid they would be sent to collections, and the people running the project would have to sign documents agreeing to this in order to use the Investment Tier). Whether the crowdfunding agency should be willing to cover requested refunds prior to collecting the owed refunds from the people running the project would require a more detailed analysis of the specifics, so I won't make a proposal about that at this time.

All of this would provide greater transparency for backers while the project was going on, letting them make a better informed decision whether to request a refund if the project fails to meet its deadlines. The people running the project would be able to decide what kind of deadlines they want to hold themselves to and also how much financial risk from refunds they want to expose themselves to, but potential donors would have this information when deciding whether or not to donate. Since there would be consequences if a project burned through all its money and failed to deliver (either paying back the refunds out of pocket or having to deal with debt collectors and having one's credit score dinged) there would be less psychological motivation to pursue lawsuits. All of this would also require fairly minimal overhead to carry out, so the crowdfunding platform shouldn't need to take too much larger a cut, and it doesn't add too much administrative overhead for the people running the project.

Finally, it would be completely up to the people running the projects which tier they wanted to use, with a couple of restrictions. Projects asking for funding below a certain amount (say, $10,000) would be restricted to the Donation Tier, as the amounts involved would be too low to warrant the overheard of the Investment Tier safeguards. Also, people could only use the Investment Tier for their projects if they were located in a country where the laws sufficiently allowed for the safeguards of the Investment Tier to be carried out. In brief, the Donation Tier would allow projects to have minimal oversight and liability, but would need to make clear to donors that nothing was being promised in return (potentially resulting a fewer donors, and better managing the expectations of those that remain). And the Investment Tier would provide better safeguards, potentially attracting more donors, but would hold the projects to greater oversight and liability if they weren't able to deliver.

First of all, I apologise for having disappeared so suddenly and for so long; personal matters prompted me to want to put off my reply, and though I intended that it be for only a few days, it ended up being longer. ^^;

Regarding the topic:
Quite a lot has been said since I last posted, so my apologies if I miss any points that I should touch on.

You are quite right here, and I feel a little silly for having conflated them. ^^;

On a general note, I want to note one of the principles, and one of my main concerns in this conversation at the moment: I don't want crowdfunding to gain too much overhead; I want it to remain friendly and accessible to those who were not trained at business or law schools. I'm concerned about the potential of developing a slippery slope, with new concerns being dealt with by implementing further rules and regulations, until the whole thing ends up so complicated that starting up a crowdfunded venture calls for expert advice. I want crowdfunding to remain about project creators asking people to help them, rather than about business.

Again let me link to this TED talk--what the speaker describes is pretty close to how I feel about crowdfunding, I think.

I don't mind the idea of crowdfunding implementing some degree of self-policing--indeed, it might be a good idea--but I fear it being overdone due to fear of litigation. (If I recall correctly, this happened to comics at one point.)

However, I agree that transparency is a big part of improving crowdfunding. Indeed, I think that one of the major differences between a project that runs late and is (largely) met with sympathy, understanding and patience and one that runs late and is met with clamour of outrage and demands for refunds is in how (and indeed whether) the project creators interact with their funders. Providing updates, informing backers of issues and schedule slips and overall being candid about the progress of the project should generally, I believe, result in a far more positive reaction than simply going silent for six months.

I suppose that that's one of my main thoughts here: one of the things that I think might improve crowdfunding is encouraging project creators to interact with their backers and keep them informed.

(Ideally, from my point of view, less through rules than by advice and direction, but the balance between the two might call for experimentation.)

The matter of deadlines and projects finishing late has been mentioned a few times. From my perspective, I'm inclined to expect a crowdfunded project to be at least somewhat late, and to view deadlines for a crowdfunded project are estimates only, and not something to hold the project creators to.

In fact, I view the lack of a body enforcing deadlines as a significant advantage to crowdfunding, freeing creators from an often-artificial stricture that can be an impediment in traditional forms of project development. (I'm admittedly thinking primarily of artistic endeavours, such as video games.)

More pragmatically, my impression is that crowdfunded projects are not uncommonly quite early in development, at which point any estimates of delivery dates are likely to be off, and created by people without expertise in project management, which may lead to poor judgement of dates. There's also the simple issue that sometimes things come up unforeseen.

Hmm... What types of project creator do you see taking the second tier? Mid-sized companies like Double Fine and the like? It might work for them, I think, and I suspect that they'd be more likely to be worried about litigation than individuals and "garage developers".

As to the basic tier, I really don't like the idea of being disallowed to use rewards. While I think that I see your reason for doing so, I fear that it takes away a major means for smaller projects to attract more attention and provide incentive to donate at higher tiers. Honestly, I think that I'd rather just have a disclaimer somewhere stating that all funds given are donations, and that rewards offered are just that, rewards, not bought items--something like the Indiegogo terms that I linked-to earlier. There will still be some people who don't realise that and get upset, I imagine, but I don't see a good way of getting away from that at the moment. :/ (I do rather like the Indiegogo terms, by the way.)

Finally, I'll note that I think that whether safeguards are implemented or not there will likely be at least some attempts at litigation, and at least some people who don't read the descriptions of how crowdfunding works.

...Okay, this post is far too long, so I'm going to stop for now. ^^;

Basically any project creator that believes a solid promise of rewards is necessary to attract the kind of money they're hoping to raise. Some projects will be able to attract enough donations just from people who want to see the project get done, without being promised anything in return. But other projects may not be able to attract enough donations without promising anything in return, so in such cases the rules for the Investment Tier would provide at least some measure of accountability when such promises are made to attract funding.

Most crowdfunding platforms already have that kind of general disclaimer, and look where we are. It doesn't work because 1) when its the same disclaimer on every project it just gets ignored and 2) signals from many project creators tend to run counter to such a disclaimer. The current reality of crowdfunding "rewards" is that regardless of what's promised such rewards are pretty much at the whim of the project creators with next to no accountability if they aren't fulfilled. My proposed rules for the Donation Tier would simply align what's being said with what's being done.

Additionally, note that under my proposed rules project creators could still use the Investment Tier without exposing themselves to any financial liability- they're just need to set the refund amount for all deliverables to $0. However, this would serve to signal to potential backers the unwillingness to expose themselves to liability, as well as their (lack of) confidence in their ability to deliver on all of their promised rewards. In short, my proposed rules allow for project creators to expose themselves to as much or as little financial liability as they want, they just have to be upfront about it with potential backers (and be willing to deal with increased to decreased funding as a result). The only projects fully barred from offering rewards under my proposed rules would be for those asking for under $10,000, and if the project creators believe that would be a serious impediment to their ability to raise the amount they're shooting for they could always bump up the amount to $10,000 to be eligible for the Investment Tier.

Yeah. This. I'm not disagreeing with you here, I'm railing against the heavens.

Ignorance is no excuse. Never. No good reason. I grow frothy at the mouth and have to sit down and dose myself with chloroform whenever I see consumer rights advocates up in arms about how stupid people are being separated from their money.

I loathe that Kickstarter - and like crowdfunding vehicles - are viewed as shops, and then this viewpoint is reinforced by laws. I would never advocate some nightmarish neo-Darwinian market where the weak are eaten, but how is anyone going to learn that the universe wants to kill you and will keep trying until it wins - and it always wins - if we keep sheltering people from encountering things like risk, loss, and error?

I don't recall (and, what do I know, maybe this is just hindsight with rose-tinted glasses) there being any question that Kickstarter was an investment platform, say, three, four years ago. Only once masses of people - and their statistically inevitable failures - arrived did I hear anything like this.

Dammit, I'm old and cranky.

In that case I feel that it's not a good idea: the Investment Tier seems to me to place too high a barrier for the smallest projects, which may benefit particularly from being allowed to offer rewards. I fear that removing rewards hamstrings projects--perhaps especially those that don't have companies behind them--while the additional restrictions of the Investment Tier seem a little onerous for smaller projects, and may discourage the formation of such.

While not as vehement as OneFiercePuppy, I do partially agree with them.

I do think that there will likely continue to be people who don't read the disclaimers or the terms and conditions, but I don't agree with restricting the project creators to such a degree for it. It seems to me that the problem is not that the project creators or crowdfunding sites are doing something that I want restricted, but rather that those who don't read the disclaimers are misinformed.

Again, to my mind the better solution would be to encourage backers to become more informed, but I don't claim to know how to do that.

Given that, I'm inclined to argue for making the disclaimers and the terms and conditions clearer, where called for, and apply them as defence against suits.

Hmm... While I'm not confident in saying "many", I do think that I agree that this is a potential problem. Again, I think that it's more an issue of lack of knowledge on the part of the backers, but perhaps an additional rule restricting how project creators may phrase their reward offers, and some degree of oversight on the part of the crowdfunding platforms might help?

I'm wondering how Anita Sarkeesian's "project" isn't in the database yet. :P

Either way it results in the same problem- the expectations of backers are not in line with the current reality of crowdfunding. And everyone has to deal with the results of that problem, whether it is lawsuits, government scrutiny and regulation, or just lots of angry people who decide to completely wash their hands of crowdfunding. Basically the crowdfunding platforms and project creators can implement some fairly minor restrictions on themselves to effectively align expectations with reality, or both the project creators and crowdfunding in general is likely to suffer far worse fallout from their lack of effective action.

I didn't back and didn't follow too closely, but I believe it does not belong. As I recall, she did produce some content. It wasn't anything like what was expected, and of course she raised ludicrously more money than she should have needed for her little offerings, but to retread old themes - it's not a scam to not get what you want. As far as I know, she's done four videos covering five topics, which is what the kickstarter was for. And since I believe the video series is still considered "in development" - and since there is no timeline enforced on Kickstarted projects - it's not appropriate to call it a scam.

True, she lied about her background, though, and claimed that the money would be used (among others) for obtaining games to make the material. Ultimately she took the gameplay footage from other YouTubers - without asking them for permission or crediting them. These two points alone are enough to consider it a scam, IMO.

Show me a victim of the "scam".

I'm not gonna go through all the YouTube videos on the issue again (especially since by now there's even more than when I first followed the issue) but there have been comments and videos by different people who first backed her and advertised her Kickstarter and then expressed that they felt deceived and betrayed by her campaign. Unlike what many believe and say it's not just people who have been against her "cause" all along (and thus didn't back her) who consider her a fraud.

One thing concerns me here: how confident are we that it's "lots", and not just a vocal minority?

The thing is, some of these restrictions don't seem minor to me: the loss of rewards could hamstring smaller projects, while strict deadlines seem infeasible for many projects.

On the other hand, I do actually rather like the idea of having the crowdfunding platform release money in stages, and potentially freeze it in emergencies, especially for projects that take in larger sums of money. I am a little cautious: I suspect that this would lock the project in to Paypal (or something similar), which I fear can be a bit of a pain in some countries (which is one reason that, should I start a crowdfunding campaign at some stage, I'm likely to do so on Indiegogo, which, in its "flexible funding" option, at least, allows the project creator to get the money transferred to a credit card account).

I also like the idea of this disbursement information being shared with backers.

As to credit checks, I don't know enough to comment one way or another on this: in particular, how feasible is it for a company like the one that runs Kickstarter to run credit checks in countries other than America? (I imagine that the relevant offices are located in America.)