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Shark Tank Blog Kickstarter Fraud
1. 5/15/2015 Kickstarter Fraud - Shark Tank Blog
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Kickstarter Fraud
April 10, 2015 by Rob Merlino 1 Comment
Kickstarter fraud is a growing problem, and it’s something any small business trying to raise money
on crowdfunding sites should be concerned about. Kickstarter is “becoming the best way to get on
Shark Tank. They’re recruiting heavily from Kickstarter and if you have a successful campaign, they
want you on the show.” Those are Caleb Light’s words. He’s part of Power Pot, the company Mark
Cuban invested in during season five. Cuban gave Power Pot $250,000 for 12% equity, plus 3%
‘advisory shares’ (shares Power Pot had already set aside), and a seat on the Board of Directors.
Obviously, partnering with Mark Cuban is a big deal for any business, but without a successful
Kickstarter campaign, Power Pot might never have had an opportunity to pitch in the Tank.
There are many other Shark Tank successes that originated on Kickstarter: Freaker, Urbio, Lumi,
iPooch, Naja, and many more. The reason Shark Tank producers like companies with successful
Kickstarter campaigns is there’s already proof of concept. If a group of consumers are willing to
part with their hard-earned money before a product is even made, it must have appeal. There are
far more Kickstarter successes beyond those appearing on Shark Tank; it’s become a viable way for
businesses to raise seed capital from channels previously unavailable to them.
The JOBS Act promises to make Kickstarter and other crowdfunding sites even more viable for
small businesses. Under the act, businesses would be able to sell equity in their business to
individual investors. On the surface, it appears like a good law. More access to capital for small
business has to be a good thing, right? If that’s the case, why hasn’t the equity segment of the law
passed yet? The answer is an all too familiar refrain:
“We hear that the rules have been written by the staff and are just sitting in the in-box
of the commissioners,” says Sara Hanks, a former SEC attorney who is now chief
executive of CrowdCheck, which plans to provide due diligence on companies raising
money through crowdfunding. (from Bloomberg Business Week)
Washington bureaucrats sitting on policy decisions shouldn’t come as a surprise to anyone, but the
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2. 5/15/2015 Kickstarter Fraud - Shark Tank Blog
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article in Bloomberg Business Week alleges fraud (at least securities fraud) hasn’t materialized in
crowdfunding platforms. That’s looking at crowdfunding through rose-colored glasses. Fraud exists,
but nobody seems to want to tackle the problem, including, in some cases, the crowdfunding
platforms themselves. Organizations like Crowdfund Insider, a “leading news and information web
site covering the emerging global industry of alternative finance including crowdfunding and peer-
to-peer lending,” are actively investigating fraud, but what about businesses that are Kickstarter
fraud victims?
What, besides shutting down fraudulent campaigns, can be done to protect people. There is
legislation that protects backers, but does it have “teeth?” The answer is, it depends who you ask
for help.
Kickstarter Fraud Victim Speaks Out, nobody listens
I had the opportunity to speak with a victim of a Kickstarter fraud. Dawn Sole, president
of Creatively Convenient, LLC, created a patented, 4-in-1 multifunctional beauty tool called Pluck N’
File which she sought to get crowdfunding for. A little over a year ago, Dawn submitted a campaign
to Kickstarter to raise funds for Pluck N’ File. Kickstarter turned down the campaign, so a year later,
Dawn set up a campaign on Indie GoGo to raise funds. What happened next was a big shock.
After a business meeting, Dawn decided to Google her name and company name. She found that
someone had copied her Indie GoGo campaign word for word and was successfully raising money
on Kickstarter. The company in question, an unnamed UK entity, set up a five day campaign and
raised a quick $25K, all with Dawn’s company information! The irony is, Kickstarter allowed the
fraudulent campaign after denying Dawn a year earlier.
Dawn got lawyers involved and Kickstarter pulled the campaign. In its place, they put a page with
the following statements on it:
Description of
copyrighted material:
The photographs and
copy are all owned by
Creatively Convenient,
LLC. The product is
protected by US Patent
D718497. The trademark
PLUCK N FILE is owned
by Creatively
Convenient, LLC.
Description of
infringing material:
The images and copy are
infringing. In addition, the product itself infringes US Patent D718497. The use of the
name is unfair competition.
Pulling the campaign was the right thing to do, but Dawn feels Kickstarter and government entities
created to protect people from fraud have done little more than give her lip service. Kickstarter
wouldn’t even acknowledge her, at least until her lawyer got involved. They never even said
whether the fraudulent campaign received it’s funds. “They swept it under the rug,” says Sole.
“Most of the ‘little guys’ out there simply back down because Kickstarter has deep pockets. You’d
think a five day campaign would at least send up a red flag.”
Dawn got no satisfaction from a slew of government agencies, either. “I sent out 38 packets of
information and only one person replied – a guy from FINRA was very sympathetic, but inquiries to
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3. 5/15/2015 Kickstarter Fraud - Shark Tank Blog
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the SEC, Florida Attorney General, the US Patent Office, and a bunch of other agencies were
ignored. The thing is, Kickstarter is acting as a broker of sorts, they need to do their due diligence.
If somebody at Kickstarter simply googled ‘Pluck N’ File,’ they’d have seen the campaign on their
site was a complete fraud.”
The good news is Dawn’s Indie GoGo campaign raised over $18K, but even though the fraudulent
campaign was removed, Dawn feels her brand has suffered from the negativity associated with the
episode. “People who find the campaign on Kickstarter and see the infringement statement think
‘what did Dawn do wrong?’ It raises some negative feelings.”
Dawn’s not taking this lying down, either. “These people engaged in criminal activity. They
committed theft, wire fraud and possibly money laundering. I did all the right things. My product is
patented and trademarked, but the people in place to protect those things aren’t doing their job.
This is bigger than a hijacked campaign. I want to do the right thing and stop these scammers
before they do this to others.”
Dawn is not the only victim of duplicate campaigns, but she’s been more vocal than most (note:
NEVER piss off an Italian woman – especially one from New Jersey). Ken Lowrey and Robert Wilson
IV started a Kickstarter campaign for their comic called “Like a Virus” back in 2013. Wilson found a
complete duplicate on Indie GoGo a few days later. The campaign was pulled before it could raise a
lot of money (it had only received $10), so the damage was minimal. Wilson found out about the
fraud because he has a Google alert set for his name. Just like Sole, he found out about the fraud
himself – nothing resembling due diligence on the part of the crowdfunding site occurred.
Crowdfunding is Untested Water for Criminals
Criminals, con men, and scam artists have likely existed since humans started walking upright. In
the internet age, there are ample opportunities for ripping people off; crowdfunding is the new
“wild west” for criminals. There are ample opportunities for fraud, as the above examples illustrate.
One has to wonder how many duplicate, fraudulent campaigns have collected money and gone
unnoticed.
If I put on my larcenous hat, I can imagine all sorts of ways to exploit crowdfunding sites for
unsavory purposes (please don’t try this at home). Besides the aforementioned fraudulent
methods, suppose I wanted to launder half a million bucks from money I received illegally. I could
set up a crowdfunding campaign, donate funds from fake names using pre-paid credit cards, and
walk away with “clean” money. The implications of this behavior could be very broad reaching.
Criminal behavior, unfortunately, often precedes efforts to curtail it. The government may be
sitting on the crowdfunding policies because they’re still sorting out the details and are unsure how
to enforce the new, proposed laws. Victims like Sole may push the issue to the forefront via a more
direct route: the courts. She hasn’t ruled out litigation at this point and perhaps getting cases like
hers into the court system is a way to force some action by regulators and the crowdfunding
platforms. There’s nothing like a Federal case to make a company take notice. Dawn’s not sure if
she wants to take her case to court, but she says, “if I have to sue, I’ll do it to put a fire under their
butts.”
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Filed Under: Financing Tagged With: Dawn Sole, fraud, Kickstarter, pluck n file
About Rob Merlino
Entrepreneur, auteur, raconteur. Rob Merlino is a blogger and writer who
enjoys the Shark Tank TV show and Hot Dogs. A father of five who freelances in
a variety of publications, Rob has a stable of websites including Shark Tank
Blog, Hot Dog Stories, Rob Merlino.com and more.
Rob can help you buy or sell real estate anywhere in the United States.
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Comments
Melissa says:
April 18, 2015 at 6:54 pm
The worst one that comes to mind recently is the company TriggerTrap that raised almost
$500,000 and failed to deliver the product, all while paying themselves salary. They are giving
the backers a 10% refund and keeping the rest of the money. Some of the backers are filing
lawsuits. Kickstarter keeps a cut of the funds and they are not refunding the backers from
their cut. http://petapixel.com/2015/03/02/triggertrap-has-failed-after-raising-nearly-500k-for-
the-ada-modular-camera-trigger/
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