Sophisticated Crowdfunding Scam Almost Succeeds

Published: 6/28/2013 9:49:43 AM


One of the biggest areas of contention about crowdfunding is around the issue of fraud prevention. I read with close interest an account of the Kickstarter "Kobe Red" project that was one hour away from successfully removing $120,000 from the pockets of the project's 3,252 would-be backers.

The phony project was notable for its characteristics that mirrored successful projects - a slick video, fake testimonials and media coverage.

While Kickstarter relied on the "crowd" to flag the project as possibly fraudulent while it was still underway, if it had succeeded it would have been the largest known fraud in the site's history, according to the MSN Money report.

This example of a large fraud attempt should be a wake-up call to everyone who wants to participate in the crowdfunding industry.

Crowdfunding portals should redouble their efforts to vet projects and their principals. Solely relying on your unsuspecting users to uncover fraudsters will be no refuge. If your portal becomes known as a place where people can quickly lose their money, you will go out of business faster than you entered it.

Crowdfunding investors likewise should take seriously their responsibility to perform due diligence on potential investment opportunities, or suffer the consequences of wasted money with no potential for return.

We can all welcome the increased access to capital and potential investment returns that the crowdfunding industry promises. But that's not enough: we need to take responsible action for the part we play in this nascent industry.

Don Jones


Don Jones
CEO, VentureDeal

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