Wall Street Journal | Evelyn M. Rusli | November 12, 2013

On Kickstarter, the crowd is your best friend — or your worst enemy.

On Monday night, the creators of Luci, a device that induces lucid dreaming, abruptly pulled the plug on their Kickstarter funding amid a flurry of fraud accusations. Former backers celebrated on the project’s Kickstarter comments page, calling it a “happy happy ending” and a “great result.”

More than $363,000 Canadian dollars will be returned to 2,569 backers.

The story of Luci both highlights the vulnerability of crowdfunding sites like Kickstarter, where virtually anyone can raise money, and the power of online crowds as a regulatory force.

On Nov. 1, Amine Barnat, a student in Paris, pledged $175 Canadian dollars to Luci. For such a donation, GPX Technologies, the Montreal-based company behind Luci, promised to give backers a product that would help induce lucid dreams.

After spotting some red flags, Barnat lowered his donation to $1 – just enough to continue commenting on the Kickstarter page—and accumulated and shared data that, he believes, showed that Luci was a scam. He says his mission then became to “warn people about the oddities I found in their campaign.”

GPX did not respond to requests for comment.

Barnat and other backers used the comments page to point out perceived discrepancies, such as a lack of information available online about GPX and its founder, Wayne Kendall. He found what appeared to be modified images of the components of the Luci device, and a lack of video of the device in action.

In the comments page, GPX’s Kickstarter account sternly defended its status as a registered business and said its photos were legitimate. The account also accused Barnat, under the handle “Manoko,” of harassing Kendall’s wife via Facebook, an accusation Barnat denies. (He responded by posting a video of his Facebook messages to YouTube.)

The skepticism chipped away at Luci’s funds.

After hitting more than $400,000 CAD in funds on Sunday, the project lost more than $38,700 CAD on Monday night before the project was canceled, according to Kicktraq, a site that tracks the funding progress of Kickstarter projects. A separate post on Reddit also pointed to possible red flags and attracted 42 comments.

So far, Kickstarter has hosted more than 100,000 projects, and of these, less than a dozen have been shut down because of fraud concerns, according to the company

This is not first time Kickstarter has wrestled with fraud allegations. Last summer, funding for a project called Kobe Red (a Kobe beef jerky startup) was suspended amid scam accusations — but not before the group attracted more than $120,000 worth of pledges. Critics of Kickstarter have argued that such sites will attract more bad actors, as they rise in popularity.

Kickstarter has some basic controls in place. It verifies the identity, address, bank account, phone number and email for the project creators. It also tries to verify that the project submitted is indeed a creative project (not for instance, a project to fund a personal vacation). Projects must have a distinct beginning and end.

Kickstarter warns backers to carefully review a project’s materials before pledging money. Users can also alert Kickstarter if they suspect a project is inappropriate or fraudulent.

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