Scam of the day – June 26, 2013 – Crowdfunding scams

Crowdfunding has become a popular buzzword that describes the process by which people raise funds for various projects from movies and books to the development of new businesses.  Recently a crowdfunding effort on the legitimate crowdfunding website www.kickstarter.com to raise money for a company that would make Kobe beef jerky was discovered to be a scam just before almost $120,000 was to be distributed to the scammers.  Usually, people contribute to crowdfunding efforts not out of an interest in getting a return on their investment, but rather as a way of supporting something that seems worthwhile.  Often the person or company raising the money will provide some small benefit in return for the funds, such as tickets to the movie premiere of a movie funded through crowd funding.  Whenever you give money through crowdfunding, just as when you give money to a charity, you should do your research first to make sure that it is legitimate.  Making things even more complicated is the JOBS Act, a federal law that provides for crowdfunding of initial public offerings.  This law, although it went into effect in 2013, is still not being used until the SEC issues important guidelines and regulations required for the law to be active.  You can be sure that scammers, such as the Kobe beef jerky scammers will be out there taking advantage of inexperienced investors looking for a big hit, but who do not take the time to do their homework.

TIPS

Check out the person or company online.  Find out if they are legitimate or a fraud.  Check with the Federal Trade Commission to see if there are complaints against them.  Do a Google search in which you merely add the word “scam” to their name or the name of the company and see what comes up.  Ask for detailed information from the person or company raising money through crowdfunding so you can understand the project.  Never give to a project that you do not fully understand.  When it comes to investing in a business, an artistic endeavor or even a charity, it is critical to do your research about the people behind the particular venture before you consider sending  money.  Finally, unless the particular company raising money through crowdfunding is designated as a 501(c)(3) company by the IRS, you cannot deduct your contribution on your income tax return.  Also remember, that merely because a crowdfunding appeal appears on a legitimate crowdfunding website does not mean that the website vouches for its legitimacy.