Giving money back seems like a terrible idea from a fundraising perspective (though personally I'd be irked if I had paid over $700 and they didn't refund me). Either way, it's not a great position to be in.
That's how crowdfunding campaigns work, and without enough support to reach the $32M, there's simply no way to manufacture the phones that got funded at such a low price.
You misunderstand. I mean giving money back to people that paid more than $695 is a terrible idea from a fundraising perspective. It does makes sense however since the backlash could be severe.
edit: please don't let me be misunderstood.