Investors Warned Of Crowdfunding Crooks


US investigators have issued an alert about reward based crowdfunding that has been infiltrated by suspected scammers and crooks.

Reward based crowdfunding is when a company looking for start up cash offers free gifts to investors who stake small amounts.

The gifts are typically mugs, T-shirts, mentions on web sites or sample products.

The US Treasury has investigated a number of reports about suspected fake start ups raising cash from crime, terrorism or money laundering via crowdfunding platforms.

The investigation was led by the Treasury’s Financial Crimes Enforcement Network (FinCen).

FinCen has revealed the number of suspicious activity reports about crowdfunding platforms is rising to around 40 a month – almost four times the amount for last year.

Suspicious activity

“Easy access to crowdfunding platforms, international money transfers and the lack of sophisticated antifraud measures make reward crowdfunding a target from crooks all over the world,” said a FinCen spokesman.

The spokesman explained that funds are paid into crowdfunding projects and then quickly moved through the international financial system to organisations suspected of involvement with serious crime, terrorism and money laundering.

“That’s not the end of crime in crowdfunding,” said the spokesman. “Phishing, identity theft and credit card fraud are also rife.”

FinCen was involved in 114 suspicious activity reports.

Around a third involved terrorist fund raising, another third related to money laundering, while the rest were mainly fraud.

Violence and terrorism

The government has not pinpointed any specific crowdfunding platforms or pitches that were considered suspicious.

“Payments to and from some crowdfunding sites were monitored and we saw cash coming in from several checking accounts into another account that immediately sent the money to a crowdfunding pitch,” said the spokesman.

“We also saw payments out to an African country with suspected involvement in violence and terrorism. In one case a specific bank was involved with a number of the accounts and transfers abroad that led us to conclude involvement in financing terrorism.”

FinCen works through thousands of suspicious activity reports and stresses those involving crowdfunding are few in number, but increasing.

The body also explained that the reports were confined to reward based crowdfunding and that equity pitches for finance were not involved in the investigations.

The report also dealt with crowdfunding platforms in the US, not those in the UK or other popular European centres.

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  1. Crowdfunding scammers have become more notorious in the last few years. The crowdfunding industry as a whole needs better regulations and security in place. The best way to battle currently is by discussing between each other. If communities and groups of user know something could be suspicious they can report it for further investigative. Anything flagged as suspicious should be monitored with heavier concern.

    Business Developer at Thrinacia White Label Crowdfunding

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