BBB Tip of the Week
The Federal Trade Commission took legal action for the first time against a crowdfunding creator. Project creator Erik Chevalier promised investors special versions of a board game he sought to produce if his fundraising goal was reached. After his goal was surpassed by almost 250 percent and over a year had elapsed, he canceled the project, spent most of the money on personal expenses and promised a refund that never appeared.
The type of crowdfunding in this case is donation-based. In return for reaching a collaborative goal, usually a minimum funding amount, funders get products, perks or rewards in return.
There are risks to donating to a crowdfunding project. BBB offers some tips for avoiding crowdfunding scams:
• Research crowdfunding project creators before donating. Check if they have launched successful projects previously. Check to see if they are also supporters of other projects.
• Consider what is promised to funders of the project. Is there a refund if the goal isn’t reached or the project gets canceled?
• Check the rules of the crowdfunding platform and what guarantee, if any, they provide to funders.
• Verify the legitimacy of the crowdfunding platform through research. If the platform is relatively new, be cautious as it could be a portal for scammers to defraud project creators and funders alike.
If you get taken in by a crowdfunding scam, report it to the FTC at www.ftccomplaintassistant.gov, to your attorney general at www.atg.wa.gov/file-complaint, and to BBB at http://go.bbb.org/1Fxp3vy. Also, warn other funders by posting a comment at the crowdfunding site.
Investment crowdfunding is a newer and different model that was made legal by the JOBS Act in 2012. This model is based on the principles of investing: Businesses seek capital and in exchange offer investors a stake in the company as an owner or shareholder. Unlike the donation model, investors have the potential for financial return. Only some of the provisions of the JOBS Act have been finalized by the U.S. Securities and Exchange Commission, so at this time only accredited investors can participate in investment crowdfunding.
Before investing online, BBB recommends seeking the advice of a registered investment adviser or broker, which you can research and locate at www.sec.gov/investor/brokers.htm. You can also find information about online investing at http://1.usa.gov/1Bke25j.
For more tips you can trust, visit BBB online at www.bbb.org/eastern -washington/ or call (509) 455-4200.
By Erin T. Dodge, BBB editor