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.  Unfortunately, as I have been warning you about since 2012, the potential for crowdfunding scams is tremendous. through such websites as Kickstarter and GoFundMe.  Recently, the Federal Trade Commission settled charges against Eric Chevalier, who raised $122,000 through Kickstarter purportedly to produce a board game called “The Doom That Came to Atlantic City.”  Chevalier represented to investors that they would receive rewards for there investments such as free copies of the game or pewter game figurines.  He also represented to investors that he only needed $35,000 for the project, however, he kept on taking in funds ukntil he reached $122,000.  After fourteen months, Chevalier announced that he was cancelling the project and that he would be refunding the funds to those who invested.  However, the truth is that Chevalier neither refunded any money or provide the promised rewards.  Instead he kept the funds invested and used it for his own personal needs.  Although, the FTC settlement with Chevalier includes a $111,793.71 penalty to reimburse the cheated investors, the financial penalty was suspended due to Chevalier’s inability to pay. Thus the cheated investors will receive nothing except a lesson in bad investing.

TIPS

The JOBS Act, a federal law that regulates crowdfunding was enacted in 2013, however it was only in March of 2015 that regulations were issued by the SEC to make the law effective.  Even with these new regulations in place, the primary burden of protecting your money in a crowd source investment is on the individual investors.  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.  Read the financial disclosures required to be filed by the SEC under the new JOBS Act regulations.    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.