I do not think Kickstarter projects can be viewed under legal framework of merchants and consumer protection.
A project much more like an investment prospectus than it is a sales offering.
So I would be interested in knowing if the SEC has already had a look at the Kickstarter legal setup, and if not, it may well be the next step (ie not suing Kickstarter, but refering them to SEC)
The laws around prospectus and offerings are setup very explicitly to avoid your situaton 2) - so I would be very surprised if kickstarter projects are not somehow explicitly avoiding those regulations - or if they are in fact compliant
The worst case for kickstarter is that they fall under both consumer protection laws and investment regulations.
There is no question that they fall under consumer protection laws, products are being advertised and offered, and anyone can "buy" them. I'm sure the FTC already has an open investigation or investigations.
If you create a kickstarter project, pull in $1m+, spend it all legitimately and fail to deliver the project, you could end up being named in a civil suit. In the future there will be people who lose their houses over this. Just because you made the project in 2011 doesn't mean you won't get sued in 2014.
If you create a kickstarter project, pull in $1m+, spend it all illegitimately, on personal expenses, expect to go to jail. I predict this will happen to at least 1 person.
The larger question to me is what liability kickstarter themselves have. Whatever that amount ends up being, I think they can absorb it as a cost of doing business, as long as it remains on the civil side of the law.
I like kickstarter. So far I've stuck to using it for pen and paper RPGs, something I know can be delivered on. I think the core concept around kickstarter is going to radically change the world of consumer products. Its just too new to have much of a reputation system yet (but its coming.) May be kickstarter isn't the facebook/google of pre-funding projects. If they look like they are going to take a big hit, be ready to step up.
As someone who designs business projects the whole thing sounds like a personal nightmare to me. I know first hand how the simplest of projects on paper can take 5-10x longer than estimated to complete. Add in bells and whistles to make it look attractive to a bunch of people, ouch. Easier said than done applies very much here.
Nope. Investments mean you own a piece of the business. Kickstarter doesn't allow that.
Legally, Kickstarter is just a channel for contributions. If you want, and if the project offers it, you can sometimes pre-order goods in exchange for your contributions. But you get no interest in the business beyond your pre-order, so it's not a security.
Kickstarter is not an investment. You're buying the rewards for the tier that you choose.
In the Kickstarter TOS, there is the following line:
Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.
A project much more like an investment prospectus than it is a sales offering.
So I would be interested in knowing if the SEC has already had a look at the Kickstarter legal setup, and if not, it may well be the next step (ie not suing Kickstarter, but refering them to SEC)
The laws around prospectus and offerings are setup very explicitly to avoid your situaton 2) - so I would be very surprised if kickstarter projects are not somehow explicitly avoiding those regulations - or if they are in fact compliant