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posted by janrinok on Friday November 28 2014, @10:16PM   Printer-friendly
from the easy-money dept.

Wherever there is a buying frenzy of unsophisticated investors, scammers and con artists are certain to follow. And in the case of crowdfunding, well-meaning but incompetent dreamers. Sometimes it can be hard to tell the difference.

Nick Shchetko has written a piece in the Wall Street Journal summarizing several recent cases of crowdfunding apparently gone bad. The companies soliciting the funds on Kickstarter or Indiegogo were either ridiculously overconfident in their abilities to deliver, or perhaps weren't especially ethical in the first place. Since the two sites each collect a portion of the proceeds of a successful fundraising campaign (5 percent for Kickstarter; between 4 and 9 percent for Indiegogo), they aren't necessarily incented to thoroughly vet projects. It's the projects' backers who can end up out of luck.

All five projects Shchektko mentions are consumer gadgets, and four are wearables.

Ritot, a bracelet that projects the time in a large font onto the back of the wearer's hand (Indiegogo). The team drew heat when it was revealed that they initially provided fake names for their founders, and falsely implied that the company is based in the USA; they are actually in the Ukraine. More serious concerns were raised by netizens regarding the technical feasibility of the device; while the project is not yet late, it has been noted that no working prototype has been demonstrated.

GoBe, a bracelet that automatically measures caloric intake by monitoring glucose levels (Indiegogo). The product has been declared to be a scam by some in the tech press and medical community; the company, based in Russia, defends its product.

Eyez (aka Zioneyez, Zeyez), eyeglasses with a high-def recording camera that automatically uploads video streams to Facebook (Kickstarter). The team collected $340K from 2100 backers in July 2011, but has yet to deliver a product; they've also been unresponsive to their backers and to the press.

Scribble, a pen that reproduces any color, mixing matching color ink on the fly (Kickstarter). A fundraising campaign in August 2014 was cancelled, but the team promised a new campaign at a later date after they finished the prototype. One blogger thought that the physical dimensions of the product was impossible, given that the ARM chip mentioned in the product's specifications.

Kreyos, a smartwatch with voice and gesture control, and many other promised features (Indiegogo). They did deliver a product to backers, but it was immediately derided as an expensive piece of junk. This is officially a failed project; CEO Steve Tan has written a blog apologizing for the failure, which he blamed on a poor choice of suppliers.

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  • (Score: 0, Troll) by Ethanol-fueled on Friday November 28 2014, @10:22PM

    by Ethanol-fueled (2792) on Friday November 28 2014, @10:22PM (#120967) Homepage

    "Eyez (aka Zioneyez, Zeyez)...The team collected $340K from 2100 backers in July 2011, but has yet to deliver a product; they've also been unresponsive to their backers and to the press."

    L'Chaim! The Goyim are swindled again, Herschel!

    • (Score: 0) by Anonymous Coward on Saturday November 29 2014, @02:08AM

      by Anonymous Coward on Saturday November 29 2014, @02:08AM (#120999)

      Leave the French out of this you fool!

  • (Score: 3, Insightful) by draconx on Friday November 28 2014, @11:01PM

    by draconx (4649) on Friday November 28 2014, @11:01PM (#120979)
    From the first link:

    To Read the Full Story, Subscribe or Log In.

    Seriously? I know reading TFA is passé, but we shouldn't be accepting this crap.

    • (Score: 3, Informative) by cmn32480 on Friday November 28 2014, @11:29PM

      by cmn32480 (443) <reversethis-{moc.liamg} {ta} {08423nmc}> on Friday November 28 2014, @11:29PM (#120984) Journal

      I agree, the topic is certainly relevant, but the link should be noted as (Paywalled) or something.

      Oddly enough when I accessed it via Google search, I was let in.

      The text of the article is below. Credit WallStreetJournal.com

      ---
      This summer, a unique bracelet promising to project digital information on the back of a person’s hand appeared on Indiegogo, a website where people can raise money from the public to build their projects.

      Dubbed Ritot, the $120 bracelet quickly raked in hundreds of thousands of dollars in contributions.

      But during the fundraising, it drew flags online from some in the growing crowdfunding community, such as: How could such a perfect display be projected from such a small device? Why was there no working prototype? And who were the founders, whose names couldn’t be found anywhere?

      Many backers began asking for refunds, while the founders admitted to using fake names and country of origin because they feared a backlash over their association with Ukraine due to its current conflict with Russia. The Ritot team also demonstrated the underlying projection technology they plan to use in the bracelet on Indiegogo’s site.

      Despite the controversy, Indiegogo has allowed them to continue raising money indefinitely as part of a new pilot program. So far, Ritot has collected $1.5 million and raised the price of the bracelet to $199.

      Ritot has collected $1.5 million and raised its bracelet’s price to $199. ENLARGE
      Ritot has collected $1.5 million and raised its bracelet’s price to $199. RITOT
      The campaign stands as an example to those who say crowdfunding platforms should take a more active role in checking out projects on their sites before allowing the public to contribute money that may never be returned.

      Crowdfunding sites such as Indiegogo Inc. and Kickstarter Inc. have collectively drawn millions of people world-wide who contribute relatively small amounts of money to support creative endeavors. In exchange, those people are often promised certain perks or the product itself.

      According to Kickstarter, more than seven million people have pledged over $1.4 billion since the site’s formation, successfully backing more than 73,000 projects. Indiegogo doesn’t provide similar data.

      Some crowdfunding projects have spawned huge successes, such as a $5.7 million “Veronica Mars” movie or the virtual reality headset Oculus Rift, which Facebook Inc. bought for $2 billion this year.

      But there have also been a spate of controversial campaigns, especially in the realm of technology where it is difficult to vet a product’s feasibility.

      ‘While there’s risk inherent to every project, the system overall works remarkably well’
      —Kickstarter spokesman
      The two largest sites, Kickstarter and Indiegogo, don’t offer refunds and let project creators and backers sort out conflicts. The sites view themselves as merely venues to facilitate transactions and say they warn potential backers of the risks. In October, both companies changed their “terms of use” documents in part to specify more explicitly what is expected of creators when their projects fail. Still, both documents reiterate the companies don’t mediate conflicts and cannot be held liable.

      “While there’s risk inherent to every project, the system overall works remarkably well,” said a Kickstarter spokesman.

      Indiegogo and Kickstarter say they already have measures in place to combat scams, and argue that contributing to projects isn’t the same as making purchases in stores. The companies both say they employ trust and safety teams, proprietary algorithms and feedback from the community to handle such issues, without detailing their procedures.

      Critics like Justin Mitchell, who started a website called Kickscammed.com to track troubled crowdfunded projects, said the sites don’t do enough to prevent conflicts from escalating. “It is not the $5 that you lost, it’s the principle of the matter,” said Mr. Mitchell, who added that he still invests into crowdfunded projects, but with extra caution.

      Others contend buyers should beware. Kickstarter and Indiegogo require project creators to disclose a limited amount of information about their projects to backers, such as names, locations and basic descriptions, but not their backgrounds or technical prowess. A Kickstarter spokesman said the company does require and review prototypes of “complex hardware projects” before founders begin fundraising. Indiegogo doesn’t require prototypes, but does recommend founders have a working one.

      The sites keep a portion of the fundraising regardless of whether a product is delivered—Kickstarter charges 5% if a campaign meets its funding goal, while Indiegogo charges a fee of 4% to 9%.

      The companies say they will intervene if there is reason to believe a founder is intentionally deceiving backers or breach their terms of service.

      In the case of Ritot, designer Andrew Sacharchuk said Indiegogo pushed the Ukrainian team to verify their identities after questions were raised. Using false names “was a big mistake we greatly regret,” he said in a phone interview.

      Mr. Sacharchuk said the Ritot team is eager to prove the skeptics wrong. The team is planning to finish the prototype this month and start shipping in February.

      When a Wall Street Journal reporter in Kiev followed up with Mr. Sacharchuk to set up a meeting with the team, the Ritot designer stopped answering his phone after an initial chat.

      Some funded projects are delayed by months or years, or never materialize at all.

      In September, entrepreneur Steve Tan shut down his project about a year after raising $1.5 million to make $100 smartwatches that were touted as the first with voice and gesture control. The Kreyos project had experienced months of delays, and the few people who started receiving the watch in August complained online of buggy software and missing key features like gesture control. Others who hadn’t received a watch demanded refunds and questioned whether the project was a scam.

      In a detailed blog post apologizing for the project, Mr. Tan blamed a manufacturer in China for the problems and said he had no money left for refunds. Indiegogo, meanwhile, earned about $60,000 from its 4% fee.

      Mr. Tan didn’t respond to requests for comment.

      Indiegogo didn’t comment on the Ritot and Kreyos campaigns.

      A study last year of crowdfunded projects by professor Ethan Mollick at the University of Pennsylvania’s Wharton School found that more than three-fourths were delayed.

      Delays can last for years. In July 2011, a company called ZionEyez gathered $343,000 on Kickstarter, to build video-recording glasses. Three years later, the device hasn’t been delivered. The company didn’t respond to requests for comment.

      While paying close attention to equity crowdfunding, regulators have largely stayed away from project crowdfunding on sites like Kickstarter and Indiegogo, and instances of fraud—when a company or an individual has no intention of delivering a product—are “very rare,” said Mr. Mollick. The Federal Trade Commission, which oversees consumer protection laws, said it has received a “few hundred” complaints involving crowdfunding last year but declined to comment whether it is actively looking into them.

      Complaints have also prompted little legal action. With the mean pledge amount at about $64, according to Mr. Mollick’s study, many backers may not think litigation is worth the cost and the hassle.

      Attorneys general in some states such as New York, Washington and Florida have noted a small but growing number of complaints related to crowdfunding campaigns.

      Washington’s attorney general, Bob Ferguson, filed what is considered to be the first civil suit of its kind in May, against a campaigner. According to the lawsuit, the organizer failed to deliver as promised a themed deck of playing cards after raising about $25,000 on Kickstarter in 2012. Kickstarter wasn’t named as a defendant.

      Rob Chesnut sees a parallel between crowdfunding and the early days of e-commerce that he witnessed while serving as eBay Inc. ’s senior vice president for trust and safety from 1999 to 2008.

      When Mr. Chesnut started at the online marketplace, he said he was inundated by a flood of claims of fraudulent transactions. The company then was positioning itself as simply a platform for person-to-person transactions.

      Mr. Chesnut, now general counsel at textbook-rental company Chegg Inc., said eBay established a designated department to combat fraud soon after his arrival “both because it was the right thing to do to the business and because of concerns that if we didn’t do it the government would do something about it.” EBay set up an automated fraud detection system, while the later acquisition of a payment system, PayPal, helped to control transactions.

      Jason Haensly, who co-runs the blog drop-kicker.com that looks into technical feasibility of crowdfunded projects, hopes that major crowdfunding platforms would be able to address existing issues. Despite concerns, many backers and founders—including Mr. Haensly—say the future of crowdfunding remains bright. “We’re at the point where things are changing,” he said, “and they are changing for the better.”
      ---

      • (Score: 2) by frojack on Saturday November 29 2014, @03:16AM

        by frojack (1554) on Saturday November 29 2014, @03:16AM (#121012) Journal

        Modded you informative, even though you probably violated a copyright by a verbatim copy/paste.

        --
        No, you are mistaken. I've always had this sig.
      • (Score: 0) by Anonymous Coward on Saturday November 29 2014, @05:44AM

        by Anonymous Coward on Saturday November 29 2014, @05:44AM (#121038)

        > Oddly enough when I accessed it via Google search, I was let in.

        That works for just about any "porous" paywall - the kind that want to give people a taste for free in order to lure them in.
        You can make it work all the time by setting the http-referrer your browser sends to be google.com.
        I use RefControl [stardrifter.org] for firefox. As an added bonus, if you spoof your http-referrer, that adds a level of protection against trackers making it harder to tell what link you clicked on to get to a web page.

        Sometimes you might need to block that site's cookies too so it can't remember you between visits.

  • (Score: 2, Interesting) by anubi on Saturday November 29 2014, @12:58AM

    by anubi (2828) on Saturday November 29 2014, @12:58AM (#120992) Journal

    I used to work in a corporate area, where one of my duties was a front-line for people trying to sell inventions to the company.

    I was never disappointed in the array of extremely creative marketing of unworkable concepts.

    They obviously knew psychology far more than they knew their physics.

    However, me being somewhat aspie, I was only concerned with physics, not in being their team player. I ended up dissing most of the stuff - especially the overunity magnet motors and starship drives. Some of the cold fusion stuff I am ignorant to disprove, and seeing none of the physics as I know it violated, I would give it a tentative go-ahead, albeit to this day I have yet to see anything convincing that it really works.

    I thought there might be something to the HHO motor fuel assist; not in the energy of recombining the hydrogen, but its use as a "lighter fluid" to quickly propagate a flame front for more uniform and repeatable combustion patterns in the hydrocarbon fuel. Definitely not overunity, but it looks to me like it would lead to a slight improvement in combustion efficiency by sharpening the combustion pulse.
     
    Fuel magnets? Sorry, I could see nothing there.

    And while talking of this, has anyone seen anything of Rossi's E-cat? All I see is out of PESN, which to me is full of glowing talk and a complete absence of data. It seems to be a site full of "invest now" looking to me more like Las Vegas, full of bright flashing lights but most people by and large losing their money. Although I would personally love to evaluate such a thing, I also know that if it is a scam, every effort will be made to keep me away from it. Like many other things, I want to believe, but my faith only goes so far until I get some proof before it becomes nothing more than my gullibility due to ignorance.

    When I was a kid, one of my favorite TV shows was "Dennis the Menace"; it taught me a lot about the clusterfucks which will result from misinformation, ignorance, superstition, and greed. There was not an evil thought in the whole series as I could tell, yet poor ol' Dennis left a wake of destruction despite having the best of intentions, only because other people did not see the whole picture.

    Now a days, misinformation seems another word for marketing. No wonder people make such bad decisions. Mostly trusting people. Their trust makes them gullible to sales talk.

    --
    "Prove all things; hold fast that which is good." [KJV: I Thessalonians 5:21]
  • (Score: 3, Interesting) by NoMaster on Saturday November 29 2014, @03:38AM

    by NoMaster (3543) on Saturday November 29 2014, @03:38AM (#121021)

    c.f. the SOAP Router - $140k+ from $80k ask on Kickstarter, then they hit Indigogo to get another $260k+ from a $42k ask. $400k total.

    Despite the fawning reviews on HackaDay and other 'knowledgeable' 'tech' sites, anyone with an ounce of hardware knowledge could have told you it was a scam - and plenty did. The most charitable reading was that the 'developers' didn't have a clue what they were doing and had way over-extended themselves.

    Now, after several delays, backtracks, backflips, and broken promises, the latest update is that they've given up on hardware development and will deliver 3rd-party off-the-shelf hardware with some sort of custom software - though, just like the rest of their updates, the details on what that means are slim to non-existant. Expect that to fall through too...

    --
    Live free or fuck off and take your naïve Libertarian fantasies with you...
  • (Score: 0) by Anonymous Coward on Saturday November 29 2014, @05:52AM

    by Anonymous Coward on Saturday November 29 2014, @05:52AM (#121039)

    Seems like there is a market for a company to vet these crowd-funding proposals. Kickstarter is in the right position to do it. They could offer a higher level of confidence in specific projects by guaranteeing some percentage refunded in case the project falls through. In return they would take a larger piece of the funding, maybe also require some money up front from the project founders themselves to make sure they are invested.

    • (Score: 1) by modest on Monday December 01 2014, @04:06PM

      by modest (3494) on Monday December 01 2014, @04:06PM (#121544)

      Crowdsupply.com claims to do this. They'll vet your plan and provide feedback, offer connections to third-party suppliers or service providers, marketing and even post-campaign delivery.

      I found out about this because I'm currently combing over a cool project called Purism Librem 15: a free/libre software laptop [crowdsupply.com] with an aim to free the platform from as much closed-source as possible (up to component firmware)... but we'll see how far their success goes.

  • (Score: 0) by Anonymous Coward on Saturday November 29 2014, @09:59AM

    by Anonymous Coward on Saturday November 29 2014, @09:59AM (#121064)

    Do these paint a crosshair on Palestinians?