Better Business Bureau: Beware of scammers taking advantage of crowdfunding

Randy Hutchinson
·3 min read

Crowdfunding is generally used to fund a charitable cause or commercial endeavor by raising small amounts of money from a large number of people over the Internet or social media. Thousands of crowdfunding platforms are used to raise tens of billions of dollars annually.

Well-known platforms include GoFundMe, Indiegogo and Kickstarter.

Crowdfunding can be particularly useful in gathering donations in a hurry in response to a natural disaster or human tragedy. In the commercial arena, it’s been used to fund books, music, games, gadgets, and other types of products and services.

Here are a few things to know:

  • The campaign organizer establishes the goal of the campaign and receives the money. If it’s a charitable cause, the money doesn’t go directly to the person or people it’s intended to help.

  • Each crowdfunding platform has its own set of rules on how campaigns are established, how and when money will be disbursed to the organizer, and how much the platform collects in fees. They also vary in the degree to which they vet appeals.

  • Only donations to a crowdfunding appeal established by a registered charity are tax deductible.

Unfortunately, scammers have used crowdfunding appeals to steal money from donors and investors.

Perhaps the most notorious charitable scam involved a heartwarming story out of Philadelphia in which a homeless veteran gave his last $20 to a woman who ran out of gas. The woman and her boyfriend set up a GoFundMe campaign to help the man get off the streets, ultimately raising $400,000 from 14,000 people after the story gained international attention.

The whole story was fabricated and the couple spent most of the money on gambling, vacations, clothes and a luxury car.

A California woman was recently sentenced to five years in prison for conning donors out of $100,000 to help fund her fictional battle with Hodgkin’s lymphoma. She posted fake photos of her hospital stays and the drugs she was taking, and even shaved her head to make it look like she had lost her hair as a result of cancer treatments.

In September 2021, the SEC brought its first crowdfunding fraud case against three people who conducted fraudulent appeals marketed as an opportunity to invest in cannabis real estate. They raised almost $2 million, none of which was ever used to acquire or improve real estate. The SEC also charged the operator of the crowdfunding website with allowing the scam to continue despite being aware of “multiple signs of possible fraud or other harm to investors.”

The FTC and BBB offer these tips to avoid donating to a phony crowdfunding appeal:

Scammers often use stolen photos in charitable crowdfunding appeals, so do a reverse image search of photos to see if they’re associated with other names or if details don’t match with the appeal. You’re safest donating to campaigns organized by people you know.

Find out who the organizer of a commercial fundraising campaign is and check out the name online. Ask about the person’s experience and expertise in launching new products or services, understand what happens to your money if the project never gets off the ground, ask for a production schedule, and be clear on whether you’ll get anything out of the project such as a free or discounted sample of a product.

Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South. This column is in partnership with Better Business Bureau of Middle Tennessee & Southern Kentucky.

This article originally appeared on Jackson Sun: Better Business Bureau: Beware of scammers taking advantage of crowdfunding