MEMPHIS, Tenn. — Crowdfunding can be used to fund a charitable appeal or commercial opportunity, by raising small amounts of money from a large number of people. But making sure the campaigns are legitimate is an important thing consumers should look into before donating.
ABC24 spoke with Randy Hutchinson from the Better Business Bureau of the Mid-South (BBB) about what consumers need to be on the lookout for.
Well-known crowdfunding websites include GoFundMe, Indiegogo, and Kickstarter. A campaign organizer establishes a goal for the campaign and receives the money.
Crowdfunding scams
Crowdfunding websites vary in the degree to which they vet appeals.
Recently, one of the most notorious charitable appeals involved a story about a homeless man in Philadelphia who gave his last $20 to a woman who ran out of gas. The woman and her boyfriend raised $400,000 in a crowdfunding appeal to help get the man off the streets. Investigators later said the whole story was a hoax and all three were sentenced to prison for fraud.
In California, investigators said a woman raised $100,000 to help fund what turned out to be her fictional battle with Hodgkin's lymphoma.
And the Securities and Exchange Commission prosecuted three people who raised almost $2 million in a crowdfunding campaign to start a cannabis-related business that ended up being a scam.
What consumers need to know before donating
It's best to give to a campaign organized by someone or an organization the giver knows and trusts.
- Con artists may use pictures of victims without the family's permission.
- Be wary of vague or overly emotional descriptions of how a donation will be used.
- Check out the story and gauge the amount of a donation against the risk it may not be true.
- If helping to fund a commercial project, research the organizer's experience and reputation to determine the likelihood of success.
Keep in mind, only donations to a crowdfunding campaign established by a registered charity are tax deductible.
Donations to accounts managed by a third-party like a CPA or attorney may also be safer.