Posted on: 25 February 2015


Fraud, whatever it’s guise, is a valid potential threat when you’re doing business online. But it’s a hidden and rapidly changing risk that makes it incredibly difficult to manage.

The good news is that the inherent nature of crowdfunding means that fraud is difficult – individuals publicly question things they don’t trust, resulting in more people challenging something fraudulent and it being quickly removed from the platform. Indeed, one fraudster would have to convince the many of the crowd that they are legitimate – a tall order if there are thousands of them.

In May 2014, BBC One’s Fake Britain reported on a fraudulent reward crowdfunding campaign involving a dummy website. The fundraiser posted their project and invited investors to pledge. Regrettably, instead of investors pledging to the legitimate campaign, they were redirected to a fake website where their money was taken, leaving the fundraiser with nothing.

On the side of the investors, there have been instances where lenders have committed to funding projects, but withdrawn or cancelled their transactions before any money is transferred. Whether or not this constitutes fraud is questionable but whatever label you give it, it can leave people, businesses or communities with unfunded projects despite them hitting their funding targets.

And finally, a grey area when it comes to crowdfunding fraud, is the problem of severely delayed or unfulfilled production or distribution. This is most common in reward crowdfunding, where borrowers haven’t thought through how they are going to produce and ship the pre-sold product they’re seeking funds for. This could be intentional, leaving investors waiting much longer than they expected or receiving nothing at all.

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Business Guidance

How to Manage Crowdfunding Risks

25 February 2015

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