Avoid Crowdfunding Fraud by Trying to Answer the Following Questions Before You Give:
•Has the creator launched other products successfully?
•Has the creator supported other projects?
•What does the creator promise?
If You Think You’ve Been the Target of a Crowdfunding Scam:
•File a complaint with the Federal Trade Commission.
•File a complaint with your state Attorney General.
•Warn other consumers — comment on the creator’s profile on the crowdfunding site.
Source: Federal Trade Commission
When a Morgan County couple died in a single-car wreck Halloween afternoon, making orphans of four children, a sympathetic cop went online to ask for help. He established a GoFundMe account to bury their parents. He hoped to raise $7,000.
Now, less than three weeks after Trooper Nathan Bradley first passed around the digital hat for the children of Crystal and Donald Howard, that fund is nearing $500,000.
The kids’ aunt, reached by phone late last week, could not shake the wonder out of her voice. “It’s an awful lot of money,” Sharlee Dismuke said. “The kids will need it.”
While the amount raised may be unusual, the method is not. Increasingly, people are going online with their figurative hands open. They ask for cash to pay for education, vacations, surgeries.
Then there's the 500-pound man who, with $13,000 worth of encouragement, is bicycling across America. Slowly.
Something that hardly existed a decade ago, online appeals for money have exploded. In 2013, the last year for which figures were available, The crowdfunding industry was worth a reputed $5.1 billion worldwide. It’s an area ripe with the potential for fraud. The Federal Trade Commission recently targeted its first crowdfunding campaign, filing court papers in Oregon earlier this year against a game maker who failed to deliver.
The business comprises funds large and small. Some are easily recognizable — GoFundMe is perhaps the best known, followed closely by Kickstarter. But they aren't the only ones.
"There's every niche (fund) you can imagine," said Rose Spinelli, a Chicago consultant who advises crowd-funding campaigns. Several exist solely to pay for funerals; others fund weddings; just as many underwrite educations. Spinelli estimated there are 1,000 worldwide.
“When it comes to donations, it’s all about how it touches people,” said Spinelli, who got involved in crowdfunding after helping a pet-rescue shelter raise money. The Howard kids in Georgia, she said, were especially touching.
“Because this happened at Halloween, people thought, ‘There but for the grace of God go I.’”
A lot of people felt that way. More than 12,000 thus far have given to their fund.
“People,” she said, “are very much motivated by their hearts.”
Spinelli’s no different. A couple of years ago, she read an online appeal from a young man who wanted to study Buddhism in Nepal. But he had to get there, and that took money.
“I gave him $25,” said Spinelli, sounding vaguely surprised.
“Fat guy,” heavy donations
Crowdfunding, the practice of raising money through multiple donations, is hardly new. After all, a large crowd of donors ponied up the cash necessary to create the Statue of Liberty.
In simplest terms, online crowdfunding platforms bring donors and solicitors together. The platforms charge a percentage of the donations. GoFundMe, for example, takes a 5 percent cut.
Not all expenditures are charitable. Some platforms lure investors willing to gamble cash on new businesses for a return on their investment, or for other inducements. "The Maya Angelou Documentary," showcasing the life of the renowned poet, has raised nearly $60,000 on Kickstarter; its producers want $150,000. An entrepreneur in Asheville has opened an Indiegogo account to fund a cycling and fitness studio. She wants $20,000; she's a quarter of the way there.
Elizabeth Gerber, an associate professor of engineering at Northwestern University, believes most crowdfunding participants give money for one of three reasons: to get something in exchange — in crowdfunding parlance, to get a "reward;" because an issue resonates with donors; or because a solicitor is someone the donor knows.
Gerber, whose specialty is the role of computers and other technology in social interaction, offers herself as proof. She gave money to a musician’s fund, and got a record as a reward. A colleague started a fund for a cause that resonates with her. And she gave money to a fund started by a friend, because “I ‘d donate money to anything he asked for.”
The growing popularity of crowdfunding, said Gerber, underscores a fact of life. “We are pro-social,” she said. “We are naturally inclined to help other people.”
How else do you explain the pot of cash for "Fat Guy Across America?" In June, Indiana resident Eric Hites established a GoFundMe account to pay for a bicycle trip across the nation. Hites said he wanted to pedal from from the Atlantic to the Pacific to lose weight — he topped the scales, Hites said, at 500-plus pounds — and to convince his estranged wife to come home.
He began his journey in Massachusetts. In his first few weeks on the road, Hites average 1.5 miles a day. At that rate, a cycling critic wrote on a message board, Hites would hardly make it out of the Eastern Standard Time Zone before winter set in. Still, the donations poured in.
On the advice of cyclists who said he chose an arduous, cold route, Hites moved his trek south. Late last month, he started in St. Augustine, his handlebars pointed toward San Diego. On Sunday, he posted a simple message on his Facebook page to accompany his latest selfie: "Deeper into Florida I go." He was near High Springs, about 90 miles from where he began — 2,300 miles from where he wants to be.
At last report, his fund stood at more than $13,000.
Would-be donors need to temper their charitable impulses with caution, said Helen Wong, a lawyer with the Federal Trade Commission. Before putting cash into a platform, she said, do your homework. "You need to make sure the person is who they say they are," she said
The potential for crowdfunding fraud, financial specialists warn, is real. Consider the board game "The Doom That Came To Atlantic City." Its creator promised investors "a lighthearted … game of urban destruction." More than 1,000 people contributed to its Kickstarter campaign.
The only destruction, the FTC determined, was that done to investors. “Doom“‘s creator used the cash to pay rent and fund other enterprises, Wong said. He canceled the account and sent an apology to investors. Others stepped in to create the game, but the people who originally gave money were out of luck.
As one burned investor noted on a message board: “After this project collapse, I certainly won’t be backing another project.”
The only crowdfunding initiative to go to court was settled earlier this year in Seattle. In that case, a Washington state resident began a Kickstarter campaign to fund "Asylum Playing Cards," a card game. The plan collapsed like a house of cards. The courts issued fines, court costs and reimbursements totaling nearly $55,000.
The total for the Howard children, meantime, keeps growing. Kendra Elder, a Sarasota resident who created a Facebook page about the quartet, said a lawyer will create trusts for each child to ensure peoples generosity isn't misplaced.
The fund, she promised, is legitimate — a big deal, too.
“I think it’s absolutely fantastic what people have done,” said Elder. “It’s been amazing.”
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