When You Give—Stay Alert for Crowdsourcing Scams

October 2015

In recent years, crowdfunding (also sometimes referred to as crowdsourcing) has become a popular way to raise money for a variety of creative projects, new business ventures, and charitable causes. In crowdfunding, individuals or businesses typically use an online platform to seek small sums of money from a large number of people. Larger crowdfunding platforms include Kickstarter, GoFundMe, Indiegogo, and RocketHub. However, there are hundreds of platforms online, many of which are very small.

The great positive about crowdsourcing is it gives small creative projects or worthy local causes an effective way to raise money. It can be exciting, for example, to know that you can help a local arts group mount a groundbreaking exhibit, help back a new indie film, help fund a disaster relief effort, or help support a group of young designers bring an innovative game to market.

The great drawback is that crowdfunding by definition is based on trust. Platform oversight of project presenters (those seeking your money) is often minimal. That combination of trust, plus no oversight, can give scam artists a great opportunity to steal your money. Here are some steps you can take to make sure your money goes to a project you support and not to a scam.

Understand How Crowdsourcing Works

Here are the basics: A person or organization creates a "campaign" on a crowdsourcing platform. The creator typically posts a description of the project and photos and/or videos. The creator also states a financial goal to be raised and the length of time the campaign will run, usually between one day and 60 days. The campaign creators typically use social media (such as Facebook and Twitter) to get the word out and solicit potential backers.

Most crowdsourcing platforms require that the campaign have at least a Facebook page and PayPal account. For some platforms that’s all they require by way of verification. Many platforms also have disclaimers that deny some or all legal responsibility. While most platforms provide encryption to protect donations and will take steps to remove suspicious campaign pages, it’s really up to backers to check out campaign projects and their creators before they give.

It's also important for potential backers of a crowdsourced campaign to understand that they are making a donation, not making a purchase. Many campaigns, particularly those backing a new product, will offer rewards or "perks" such as a branded t-shirt, digital download, ticket to the creative event, or sample of the finished product. Legitimate campaigns also post regular updates of progress and respond promptly to backer questions. To be clear, the type of crowdsourced campaigns discussed in this report should not be confused with peer-to-peer lending (where loans are to be returned with interest) or with crowdsourced equity investments.

Check Out a Campaign Project Before You Back It:

  • Analyze their Facebook page.
  • Check out a group's website.
  • Do a web search on the campaign creators and the project.
  • Also check out the crowdsourcing platform.

Check Out a Campaign Project Before You Back It

It's very easy for con artists to quickly create a campaign page and social media accounts and start ripping the public off. So before you donate, thoroughly check out a project and its creators.

  • Analyze their Facebook page. Is it new? Does it have lots of recent fans? Are there only a few posts or comments on the page? Do the same few people comment? A yes to any of these questions is a red flag.
  • Check out a group’s website. How long has the creative group or individual endeavor been in existence? How long has a business been established? What is their history of accomplishments?
  • Do a web search on the campaign creators and the project. What are the creators’ business background and track record? Take a look at websites devoted to crowdsourcing fraud and be skeptical. Is the campaign on several crowdfunding platforms? That’s a no-no. If the project is ongoing, are the creators giving regular updates? If a product is involved, are they up-to-date on their timeline for delivery? If the campaign is an individual supporting a "worthy cause," such as raising money for medical bills or providing relief after a disaster, be especially diligent in your research.

Check Out the Crowdsourcing Platform

Crowdfunding platforms range from the well-established to tiny start-ups with no track record.

  • What are the terms and policies of the platform?
  • How long has it been in business?
  • Does it evaluate or check out campaign creators in any way?
  • Does it take any responsibility for what may happen with donated money or for refunding money for unsuccessful campaigns?

Beware of Campaigns Posted After a Tragedy or Natural Disaster

The cause can be personal or local, such as supporting medical help for a local family injured in an auto wreck. In one recent case, a woman was prosecuted for raising money for cancer treatments when she was not ill. If the organizer is an individual, ask exactly how the money will be distributed and accounted for. Do a web search on the individual. Remember, you only have their word for what they plan to do with the money that's raised.

In many cases, the cause is regional, national or global, such as campaigns that appear after tornadoes, floods, hurricanes, earthquakes, or the current wildfires in the western U.S. These types of campaigns are a hotbed for fraud and they pop up like mushrooms. Always thoroughly check out charitable causes. Research the charitable organization’s track record with the Better Business Bureau (regional BBBs often evaluate local groups) and with national sites such as guidestar.org, charitywatch.org and charitynavigator.org. In the case of disaster relief, it is probably wiser to give money to an established nonprofit charitable organization that has a track record of accountability.

Don't Give More Than You Can Afford

Remember, if you are supporting the development of a new product—from a new online game to an innovative tech gadget—there is no guarantee that the product will be successfully brought to market. A large percentage of projects that are eventually successful also experience delays.

If you are supporting a charitable cause, there is no real guarantee that the money will actually go where the campaign says it will. If you are giving to a creative event, only the individual’s or group’s integrity or track record indicates that the artist will complete that exhibit of groundbreaking digital art, that the newbie filmmakers will shoot that indie film, or that the choral group will conduct the new composition and present the winners in concert. Support a project you like, but don’t give more than you can afford.

File a Complaint about Scams

If you have been defrauded or have good reasons to suspect a fraud, report your experience to the crowdfunding platform. Also, make a complaint to the Federal Trade Commission (FTC) Complaint Assistant. The FTC also reports complaints to a database accessible to law enforcement agencies across the country. Finally, file a complaint with your State Attorney General and local Better Business Bureau.

Defending Against Crowdsourcing Fraud Starts with You

Given the present way the crowdfunding industry operates, your best protection against fraud is your own awareness, research, and diligence. With a little digging, you can lower risk while you enjoy helping creative projects become reality or helping worthy causes.

For more information

Fund Me or Fraud Me? Crowdfunding Scams Are on the Rise from Consumer Reports

www.crowdsourcing.org, the professional organization for the industry, often provides information on scams.

For more on charitable giving, see our Remar’s Report Tips for Wise Charitable Giving.

 

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