Neil Singh Sets Record Straight on Kickstarter Lawsuit

Earlier this month we caught wind of the story of Hanfree, Seth Quest and Neil Singh as first reported by Eric Markowitz in Inc. It is supposedly the first time a Kickstarter backer had sued a project creator, and it eventually led to our story on crowdfunding being “serious business,” even on Kickstarter.

hanfree

Quick summary: Seth Quest (above, right) launched a Kickstarter campaign in March 2011 for his “Hanfree” standing iPad mount. The crowdfunding campaign was a success and he raised $35,000. Production was a disaster, though, and he ended up unable to fulfill his backers’ preorders. Neil Singh was one of those backers, and for various reasons he filed a lawsuit against Seth Quest.

From Moskowitz’s original article…

The lawsuit forced (Quest) into bankruptcy. From there, things only got worse.

Later that year, Quest moved to Brooklyn, but because of the damage to his reputation, he could only find part-time work in what he calls a non-design-related field. To deal with his anxiety and hypertension, he picked up yoga and joined a boxing gym. These days, he’s doing better, but it’s a part of his life he hopes to move on from.

This led to me posing the question of whether or not Neil Singh was a jerk for putting Seth Quest through this over $70. To my surprise, last week Mr. Singh left a comment on my article in an attempt to set the record straight.

Realizing there was more to this story, I decided to follow up with Mr. Singh to hear more about his experience, why he filed the lawsuit and what he knew about Seth Quest. Hopefully current and future crowdfunders can learn something from this experience.

Crowdfund Insider: What did you know about Kickstarter before you contributed to Mr. Quest’s campaign? What was your experience with the platform, if any?

Neil Singh: The facts leading up to my purchasing that product are pretty much the way they are laid out in that article by Inc. I really didn’t know anything about Kickstarter. I went on the website and I don’t know how I found it… I have no memory, but you know, I was reading through different projects and how the web site worked so I did have an understanding of how it worked.

What I think didn’t come across in some of the other press that’s been written about this situation is that there’s a clarity with which Seth Quest and the entire Hanfree project described what you’re going to be getting if you turn in $50. At the time it was $50, so I understood that it was his idea and it wasn’t the same thing as going to Walmart, but the terms were pretty clear. You send us $50 and we’ll send you a Hanfree product. You send us $100, we will send you two products. That’s what I read, that’s what I understood and that’s what I did.

CFI: In your opinion, knowing what you know now about Kickstarter and how it works, is that text misleading? A lot of times under the rewards themselves, these campaigns are very direct and to the point, eg: “you will receive this.” That is not necessarily the case.

Singh: It’s an interesting issue and I think it does come down to exactly what is in the text… I could go into the legal analysis, but it’s really a fundamental thing of telling people what your intentions are. So if your intentions are that… look, I’m an entrepreneur, this is a risky venture for me, I’m seeing whats going to happen and I want to reward you for believing in me in some way by sending you the final product if I am successful, but here’s what’s going to happen if I’m not successful, or I’m going to do my best and I can’t make any promises… something like that would be fuzzy in terms of what you’re actually getting, but it would be honest.

I think where you get into trouble is where you just tell people “Send the $50 and this is what you’re getting.” In Seth Quest’s case, I think what made it worse for him among many other things was the fact that he initially started with $50 and then he posted an update and said “Oh, um, shipping charges… I need to add shipping charges. So another $20 if you’re in the United States, if you’re in Canada another $30,” and I think in Europe it was even higher.

The shipping surcharge… it turns out because I got the documentation from the project after the fact, it was really for nothing. They were nowhere close to having a product finished so they kind of just made up a shipping surcharge to generate more money.

So to answer your original question, the point is if you’re on Kickstarter and you’re offering something you need to be honest about exactly what it is you’re doing and if theres a risk of the backers not getting something that you don’t want to be bound to, then that should be stated in the web site.

CFI: In your opinion how much of that lands on Kickstarter and how much of that lands on the person doing the offering?

Singh: For obvious reasons I would look at it from a legal standpoint. From a business standpoint maybe there’s different considerations here, but where I would go to look at what Kickstarter has to say about this is the Terms of Service, and that’s the first place I went when I realized that this thing was going sour. Kickstarter makes it very clear that this is not (their) problem. We’ve collected our commission, and these are the terms that govern our relationship with you, the backer. If there’s any fight between the backer and the creator, that is basically not (Kickstarter’s) problem.

That was their original stance. Since then they’ve kind of updated their position to say we encourage creators to be responsible and they might be held legally liable if something goes wrong, but really, they haven’t changed anything. This issue remains that this is not our problem.

Here’s one other way of looking at it, too, that I thought of a long time ago… somebody like Seth Quest who’s inexperienced, he didn’t really know what he was doing, he didn’t have any business background or anything like that… Kickstarter kind of encouraged somebody in his circumstances to think that you can just be the CEO of a venture project just by putting together a few designs and creating a video and slapping it up on Kickstarter. If it looks good, hey… I’m a CEO, and suddenly I’m the head of this project. That was a little unrealistic, so I think Kickstarter could have avoided the situation for somebody like him or probably for other projects as well.

CFI: You spoke earlier about Mr. Quest coming back asking for shipping charges after he had already solicited and secured contributions. What other mistakes did he make along the way that were easily avoidable or maybe made you feel uncomfortable about his savvy as an entrepreneur?

Singh: I think from beginning to end it was something that he did not think through. He just didn’t think it through. He didn’t plan anything, he didn’t plan what he was going to do with the money, where he should keep the money, how he was going to handle the budget, whether he needed a business plan… none of the very elementary, fundamental steps were followed by him from A to Z.

I would say the worst thing that he actually did, the most disturbing thing that he actually did, was he took that $35,000… he just deposited it into his personal bank account, and the thing that bothered me the most but not enough to pursue him beyond what I did, is that there’s no accounting for what he did with that money. My speculation is that if you put it into your personal banking account you’re intermingling it with your personal expenses and you start using that money for personal expenses, and that can get you in a heap load of legal trouble. That was probably the biggest mistake that he made right there, but again, if he had just gone back and talked to somebody with business savvy they would have told him you need to set up a corporation, the corporation needs to have a bank account, you should probably have an accounting person and all that stuff.

CFI: Other media outlets have reported that the lawsuit has proven pivotal in bankrupting Mr. Quest. Your comment disputes that. Would you care to expand on that and what your knowledge is of Mr. Quest’s situation?

Singh: As far as the bankruptcy is concerned, my lawsuit was actually little more than a small claims lawsuit. If you file a real lawsuit in Arizona you file that in superior court, and I filed it in a court that is lower than that called the justice court and it’s not actually small claims court. For legal reasons I didn’t file it in small claims. It has to do with the fact that I wanted a declaration that we were not investors, we were buyers. You can’t do that in small claims court, so I filed it in justice court.

All I was asking for (and the other backer who joined me) was our refunds. All we were asking for was our $70 refunds. So, my claim for $70 is not what bankrupted Seth Quest.

What bankrupted him was $35,000 that he owed to 400-plus people, and I learned through the bankruptcy papers that we all got after he declared that he was also being sued by at least one of his other credit card companies. He was facing multiple liabilities and I guess he had no way of paying it back and that’s why he decided to declare bankruptcy.

CFI: Knowing what you know now, would you ever contribute to a crowdfunding campaign again? Has this made the whole industry sour?

Singh: I think that something like $35,000 just kind of disappearing is probably just one of the growing pains that this entire concept has to go through before people start to figure out what the boundaries are, what the rules and standards should be.

So, my answer to your question would be that I am not opposed to crowdfunding in general. I would probably be happy to contribute to some project that was interesting to me provided that I was pretty confident in exactly how it was being run and what was being promised and I knew what the probability was of actually obtaining the reward, whatever that would be.

10 years from now a Seth Quest-type situation probably could not occur even if someone wanted it to I assume, because the rules will be much clearer and people will be much more savvy about what’s a good project vs a bad project.

  • Pingback: Why this jilted Kickstarter backer decided to sue — & why he was right | VentureBeat

  • Pingback: 首例!募資後做不出來鬧上法院,但 Kickstarter 能置身事外? | TechOrange《 數字與動態 |

  • Pingback: Due Diligence at its Finest: Equity Crowdfunding & Non-Equity Crowdsourcing Don’t Have the Same Risks. | The EarlyShareholder

  • Pingback: The Case Of The Disappearing Kickstarter

  • Evgeny Vinnik

    An excellent story and very interesting interview. Everyone could learn couple of lessons from it: like always register a company beforehand, and do adequate accounting of funds.

  • Pingback: The Case Of The Disappearing Kickstarter | Kotaku Australia

  • http://engloids.info/ Hentai

    My friend and I had a Kickstarter ourselves. Relatively small music related project with a $500 goal. We got 200% funded and after finally shipping all our rewards last month it was an enlightening experience as we were musicians first, buisness professionals second. Between negotiating production contracts for our various rewards tiers, tackling distribution, and launching an entire support framework for something as small as a self published music CD I have a new appreciation for the buisness side of things.

    That being said I like to think that we were relatively well prepared. There was an abundance of materials to prep you for launching a Kickstarter if you choose to go look for it. Likewise we approached our Kickstarter campaign as if it were a buisness proposal. Before even asking for money we got estimates on production, shipping, and penciled in other misc costs along with giving ourself a padding, not for profit, but in case things went wrong. Indeed costs went up, shipping was more than expected, but at the end of the day we shipped our rewards even if we paid the shipping out of pocket.

    Ours was small scale and things went wrong, we coped, and at the end of the day made up the shipping charges we ate in post-project CD sales. For something large, something +$10,000 its not hard to imagine things going wrong and bankrupting a person. That being said and having experienced these risks I still back projects, but I make sure it looks like the Kickstarter has everything in order. I see way too many projects that get funded despite it being obvious that their creators didn’t do their due dilligance.

  • Won Word

    Another tip that I’ve learned from another troubled Kickstarter campaign is the creator needs to limit every tier that is a reward tier (e.g., 1 of 100, etc).

    So, if you’re making ivory-handled backscratchers and your project blows up, you could be on the hook for 4,000 orders for them. On the other hand, if you limit your IHBS to 200 available for the plain one and 100 available for the special vibrating one, then you’re going to, at most, have to fulfill 300 orders.

  • Pingback: Zach Braff Explains Why The JOBS Act Matters To Social Media | SoMeLaw Thoughts

  • trajanc

    I frankly don’t buy Singh’s cluelessness. Imho it served him well as a legal strategy. Quest was completely unprepared and ill equipped to run this project and Singh was a egomaniacal a hole (I saw his comments demanding financial records). The two deserved each other.

  • http://www.bobslayer.com/ Bob Slayer

    After much assessment of the situation I have come to the conclusion that:
    – Quest is an incompetent
    – Sing is a Bellend
    I would never hesitate to provide assistance and friendship towards someone who is merely incompetent, however the Bellend can swivel…

  • Bruce Satow

    I backed a project called ZionEyez. They raised over $340,000. Took my money and disappeared. Never heard from them again. Proud of you Mr. Singh.

  • Bruce Satow

    The rule that kickstarter should implement is that projects that get funded and cannot fulfill their obligations to the backers must refund their monies. If not, kickstarter will refund the monies. This can be done if kickstarter acts as the trustee to the funding, they hold the money as collateral to a loan to the project creator. However this would mean a bank would need to be involved, as well as a lawyer. Whether kickstarter would want that type of involvement and risk is the main question.

    • Oeconomist.com

      Because of the added banking fees and paper-work, what you’re describing would not have been compatible with Kickstarter’s genuinely successful but smaller projects.

      What Kickstarter instead needs to do is [1] to require that project-owners provide it with up-to-date records of how money is spent (with copies of receipts &c); [2] to roll-over on any project-owner who is deliquent, providing copies of those records and full contact information to project backers; [3] to flag incorporated project-owners as not having personal liablity. (This third policy would not have mattered in the case of Hanfree; although Quest incorporated, he absurdly did so after-the-fact.)

      Although Quest insinuates otherwise, he and his associates simply ate and drank most of the Hanfree money. Had Quest known that he would literally be held to account, he would have behaved differently.

      • Bruce Satow

        Yes, but again added fees and paperwork. Many people as well as I, got screwed over with a similar kickstarter project called Eyez by ZionEyezHD See: http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zioneyez-hd-video-recording-glasses-for
        Claimed they helped developed the Flip cam. They raised $343,415 with the goal of $55,000. No one received any product. Kickstarter tells everyone, “too bad, not responsible”. They just disappeared with over a third of a million dollars. Maybe a combination of both of our ideas might work. A fund trust or holding of the monies would be good. Project owners have access to that money when they provide records on how the money is spent. When the initial goal is met, any amount over that goal, the project-owner is personally liable for. Doesn’t sound like too much work.

        • Oeconomist.com

          I’m aware of ZionEyez, and of various other disgraceful projects (eg: The Doom that Came to Atlantic City, MD-Pen, i+Case, Cookie Connections); and, even though the one project that I backed and that reached full funding delivered well, I’m boycotting Kickstarter until it cleans-up its act.

          Developers of the small projects are typically there exactly because they don’t have money, so insisting that they get the money elsewhere and then Kickstarter reimburse them is going to kill-off a lot of the projects. And Kickstarter cannot take-on the rôle of cashier without both a great deal more over-head and a great deal more liability; they’d be sued by someone every time that something went wrong.

          (As far as ZionEyez goes, the appearance is that the victims clustered together as if merely joining hands would help. The only real lever that you have has been aggressively to pursue disbarment of Carlos Becerra, abandoning that pursuit if he offers an acceptable settlement.)

          • Bruce Satow

            - Project developers need to be personally liable for the use of project monies, especially for project monies exceeding their funding goal.

            – Kickstarter should provide contact information of project developers when projects get fully funded or higher, when the project developers do not deliver. For ZionEyez, I don’t even know if Carlos Becerra is the real name of the CEO of ZionEyez. Did anyone actually check to see if this person says he is who he says he is?

            – Some type of fund management criteria where developers need to demonstrate a level of productivity is displayed.

            – Backer monies generated above the funding goal is returned if product or service can not be delivered in an announced time.

            – Without rules for securing developer responsibility, Maybe Kickstarter is the worse crook of all.

          • Oeconomist.com

            • I agree that project developers should be personal liable, and that’s one of the reasons that I think that Kickstarter should flag cases where the project developer is incorporated. I don’t think that, instead, Kickstarter should have the legal liability that would come from making it act as bursar; I don’t think that it would even exist if it were compelled to take this responsibility.

            • I think that Kickstarter should always provide contact information when a project is delinquent, but I don’t think that it need do so in other cases.

            • Kickstarter’s ensuring that contact information is accurate would be a d_mn’d good idea.

            • However, you may be sure that Carlos Becerra would have spoken-up by now if he were the victim of identity theft. You guys should run him to ground.

            • Project owners always have the option of providing evidence of past success, and potential backers always have the option of not backing projects without such evidence. People who want to gamble on those with no track record should be allowed to do so.

            • The real obstacles to refunds are [1] incorporation of project owners, [2] the possibility of declaration of personal bankruptcy (ala Seth Richard Quest), and [3] the difficulty of pursuing legal recourse (as again in the case of Quest). As a practical matter, the only thing that Kickstarter can do about [1] is to alert members that a project owner is incorporated (which I proposed that they do). There’s not much at all that they can do about [2]. And, as a practical matter, they cannot do much about [3] other than releasing contact and accounting information to backers of delinquent projects (which I proposed that they do).

            • I don’t know that Kickstarter are the biggest crooks, but Kickstarter has definitely not played honestly with potential backers. Kickstarter declares projects to be “successful” when they meet their funding goals, as opposed to when they deliver product, and they provide no information to backers of delinquent projects.

          • jsky

            i somewhat agree with trust fund and spending accounting ideas of developer accountability but must object to the idea that Kickstarter is a crook. Basically, the rules of the game are, you get access to cool inventions and products, even exclusive or early access, at the risk of it not eventuating. If projects are written transparently as such then you cant blame Kickstarter (although you can help them improve). “You cant have your cake and eat it too.”

  • Oeconomist.com

    I followed the Hanfree story on Kickstarter itself, following shortly after Mr Quest suddenly declared that the project had failed, that the money was gone, and that he was walking away without responsibility. The behavior of Neil Singh has been nothing but exemplary.

    Quest refused even to say how the money had been spent. Mr Singh made it clear that if Quest wanted to avoid a lawsuit (which would empower Mr Singh to subpoena records), Mr Quest would have to provide an accounting. Mr Quest refused, deciding that he could simply stay out of Arizona, in which the suit was then filed.

    The fact that Mr Quest has since represented himself as a victim of others suggests that he has not emerged from the experience a more mature, responsible individual.

  • Pingback: Everybody lies: Kickstarter | Keddr.com

  • Pingback: Jilted Kickstarter Backer Neil Singh Is Now An Assistant Attorney General Of Arizona | Hue Funder

  • Pingback: Will Washington state crowdfunding lawsuit open the legal floodgates? — Gigaom Search

  • Pingback: Will Washington state crowdfunding lawsuit open the legal floodgates? — Gigaom Research