Crowdfunding Scams: Common Schemes & How to Avoid Them
A crowdfunding scam is an attempt to collect money for a bogus cause.
These scams are designed to prey upon the empathy of large groups of people asking for money to help support them. People often send in small sums of money to support these causes. When multiple people do this, it can net a large amount of money for a con artist or bad actor.
Fundraising platforms like GoFundMe, Kickstarter, and Indiegogo have all been used in crowdfunding scams that have defrauded the general public. To protect yourself from being defrauded through a crowdfunding scam, do your research and your own vetting of the source.
Defining crowdfunding scams
Crowdfunding scams are when a crowdfunding campaign asks for and accepts donations through false pretenses, misleading people about the outcome, nature of the project, or cause being solicited for. Crowdfunding runs through channels that send money directly to the people asking for it, often on a very large scale through the use of the internet.
Crowdfunding is the collection of money, often small sums from large groups of people, to help someone in need. This can be done through social media platforms and specific crowdfunding sites like GoFundMe, Kickstarter, and Indiegogo. Crowdfunding is done for disaster relief, to help a neighbour or friend in need, for development or implementation of a project or product, or as aid for people impacted by a pandemic.
A crowdfunding scam is when a bad actor or con artist sets up a fake crowdfunding campaign to defraud people out of their money. Scammers pretend to be victims and seek to garner empathy and support in the form of monetary funds.
Crowdfunding scams can also be used to support projects and products that never actually come to fruition. Scammers regularly have no intention to deliver on their promises.
About 70 per cent of those giving to crowdfunding campaigns are actually helping someone in need. The other 30 percent are often putting money directly into the pockets of criminals.
Examples of real-life crowdfunding scams
Crowdfunding has exploded with the world having increased internet access at their fingertips. Criminals have found a way to exploit this.
Crowdfunding scams surround nearly every disaster relief effort today, with a prime example being the collapse of the high-rise condo in Surfside, Florida in June 2021. Several GoFundMe fundraisers were set up on behalf of supposed victims of this tragedy.
Quickly after they appeared, Florida state officials warned the public that many of them were scams, and 21 campaign pages tied to the tragedy were flagged and taken down. And officials were not sure if some of the remaining GoFundMe crowdfunding campaigns that were still active were actually valid or not.
The COVID-19 pandemic also spurned many different types of scams. Criminals are looking to take advantage of people trying to help by soliciting donations to pad their own pockets. The FBI warns that charity scams related to the pandemic, which can include crowdfunding scams, are on the rise.<
Another example of crowdfunding scams involves asking for money for a product or project that is under development. These are often cutting-edge technologies that excite potential consumers. The FTC reports on the iBackPack crowdfunding scam that was supposed to deliver customers a backpack containing built-in batteries for charging mobile devices. Instead of using the solicited funds for creation of this product, the CEO allegedly took a large part of the funds for personal profit.
How to protect yourself from crowdfunding scams
It is often best to donate to a charity directly than to go through crowdfunding source. Crowdfunding campaigns often take a fee or a portion of your donation, and your money can go further if you give directly to the charity, bypassing crowdfunding entirely. If you are going to donate this way, do your due diligence to ensure that the source is legitimate, and you are not giving money to criminals and falling victim to fraud.
Follow these tips:
- Start with other resources or fundraisers. Look to government agencies and nonprofit organisations that are offering support for the same cause or for victim relief.
- Stay local and safe. Give to people you know directly. If they post something on social media, talk to them offline to find out what they know about the campaign and its validity before donating.
- Understand the difference between crowdfunding sites. Each site has its own set of rules, policies, and vetting procedures. It can be helpful to know these ahead of time to determine how they are protecting consumers from potential fraud.
- Know what the funds are being used for. If the description of where your funds are going to go directly is not clear, this can be a red flag.
- Use a reverse photo search. Often, photos that appear in crowdfunding scams are not real and do match the actual supposed “victims.” These photos are frequently stolen from social media and will not correlate to the crowdfunding campaign.
- Find information on the organiser. Crowdfunding campaigns should provide information on who is organising it. You can look this person up online to determine their validity.
- When donating to support an invention or business project, understand the parameters. Find out if you get a refund if the project does not get completed. Confirm production status through something other than a mere 3D photo, and understand exactly what you are fundraising for. You are often not paying for a finished product, but to support a product or invention coming to fruition.
Resources for scam reporting
If you believe you have been the victim of a crowdfunding scam or have become aware of a potential scam, there are several places to report this.
- Federal Trade Commission (FTC)
- Your state’s attorney general (AG)
- AARP Fraud Watch Network Helpline
- Your state’s consumer protection Office
- National Center for Disaster Fraud (NCDF) if fraud was based on disaster relief
- Federal Bureau of Investigation (FBI) Internet Crime Complaint Center IC3
- Better Business Bureau (BBB)
You should also report crowdfunding scams to the site the campaign was run on directly, such as:
When deciding to donate to a crowdfunding campaign, you can do so safely if you do your research. It can be safer to find alternative methods to give directly to charities and well-vetted entities.
References
On #GivingTuesday, Check Into That Crowdfunding Campaign Before You Donate. (November 2018). CNBC.
Beware of Phony Fundraisers on GoFundMe. (August 2021). AARP.
FBI Warns of Potential Charity Fraud Associated with the COVID-19 Pandemic. (October 2020). U.S. Federal Bureau of Investigation (FBI).
Avoid Crowdfunding Scams. (May 2019). Federal Trade Commission (FTC).
Report to Help Fight Fraud. Federal Trade Commission (FTC).
Find My AG. (2021). National Association of Attorneys General.
AARP Fraud Watch National Helpline: 877-908-3360. AARP.
State Consumer Protection Offices. USA.gov.
National Center for Disaster Fraud (NCDF). United States Department of Justice (DOJ).
Federal Bureau of Investigation (FBI) Internet Crime Complaint Center IC3. Federal Bureau of Investigation (FBI).
File a Complaint. (2021). The International Association of Better Business Bureaus, Inc.
Kickstarter Basics. Kickstarter Support.
What Does Indiegogo do to Protect Us? Indiegogo.
GoFundMe Trust & Safety. (2021). GoFundMe.