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Authorities crack down on bad crowdfunding campaigns

Posted at 6:20 PM, Sep 06, 2018

Crowdfunding requests are all over our social media feeds. But now, federal agents have stepped in to investigate at least one of the biggest crowdfunding efforts lately.

Jon Schindehette, founder of Art Order LLC, knows how to raise money by crowdfunding.

He's a small-time artist who just raised nearly $10,000 through a crowdfunding effort for greeting cards.

This is the company’s second year, and he knows how to deliver for his customers. But, not everyone does.

"I see some campaigns that have gone bad, and people haven't produced what they said they were going to produce and ran off with the money," says Schindehette.

There's the case of this high-tech backpack that lets you charge all your devices and has an internet hot spot for you and your friends.

"In this case, their story is still not clear on just what happened,” explains Karl Dakin, a crowdfunding expert. “They took over $700,000 and delivered nothing to any of the customers."

Dakin runs his own company that helps others run crowdfunding campaigns. He's aware of other problems, like the Alabama woman who fraudulently raised $260,000 on GoFundMe, claiming she had terminal cancer. She didn't, and she is now serving a 25-month prison sentence.

Dakin, however, doesn't want to scare donors away. But he advises to look for companies that have had successful campaigns in the past and realize what a crowdfunding campaign really means.

"From the consumer standpoint, they're not really thinking of it as an investment they're thinking of it simply as a delayed purchase, where they'll give them the money today and then they expect sooner or later that they'll see that product arrive in the mail but there's no guarantee," Dakin says.

Dakin says he’d like to see some type of rating system for crowd funders, where past success follows you to your next crowdfunding project.

Elizabeth Kwok, an investigator with the Division of Financial Practices (FTC) says one of their goals is to give consumers back their money.

Multiple news outlets report the FTC is looking into the backpack company; the FTC has gone after people before.

"We've been paying attention to, since at least 2015, when we actually brought our first case against a crowdfunding campaign,” says Kwok. “He failed to deliver, despite successfully funding over three times the requested amount."

When it comes to criminal charges, prosecutors have to prove something specific about the crowd funder.