Kicked to the Curb: Wisdom of the Crowd Roots Out Apparent Fraud

by Crowdfundinglaw

People are prone to finding validation of their own opinions rather than thinking critically about the basis of those opinions.  Therefore, the story of an apparent fraud attempted through Kickstarter has the potential to be used by critics of crowdfunding and supporters alike.  Critics will see this as an example of impending massive frauds.  Advocates of crowdfunding will use it as an example of how the wisdom of the crowd is the most successful tool for self-regulation.  In my last post, I argued that adding a securities exemption under the JOBS Act was not likely to make crowdfunding more attractive for fraudsters because the existing crowdfunding sites that use donation-based crowdfunding would be much more attractive tools to perpetuate such frauds.  After all, Kickstarter is obviously not discriminating in the projects they now host.  They do not have any apparent built-in protections on how the funds raised are ultimately used and contributors do not have any real mechanism to know what happens with those funds.  Why would an enterprising fraudster wait for an investment platform where SEC disclosures will be required and contributors would have an expectation of not just being repaid but to receive an economic return?  My point is that some of the existing platforms are much more susceptible to fraud than any investment platform will ever be.  But even so, we had not seen evidence of any such fraudulent activities.

Enter “Mythic: The Story of Gods and Men”

Now we have evidence of an apparent fraud by promoters of a potential video game on Kickstarter.  It appears that the project promoting “Mythic: The Story of Gods and Men” as a video game was in virtually all respects, well, mythic.  That some enterprising fraudsters apparently faked bios, stole graphics and invented a business opportunity is disappointing.  However, the fact that this story was uncovered by the crowd with amazing speed is evidence that crowdfunding is inherently geared toward thwarting such frauds.  Detailing how this was uncovered is outlined by others in such detail that I cannot add to it.  The point is, the system worked and no one lost their contribution to this apparent scam.  Does anyone think regulators would have been as effective?  Chalk one up for the crowd.