by-sunface13
Fraud Detection & Prevention

When Crowdfunding Gets Sinister

At IDG Connect, we love a bit of crowdfunding. It’s easy to spend hours trawling through all the maverick ideas that could never happen in the world of Silicon Valley and its endless startups ending in ‘ly’. We’ve interviewed plenty of the best projects to get their views, but then one interview turned up something completely unexpected. The whole campaign was a fraud.

[Note: We’re holding back on links to the pages in question and full names to avoid legal troubles]

Based in Russia, Max had designed a concept idea for a new kind of desktop peripheral that looked very cool. Unable to get a contact email for the page founder, I eventually found a site listing the concept’s creators. Needless to say, when Max and his team found out their design (and that’s all it was, no hardware or prototypes had been made) was listed on Indiegogo without their knowledge, they were a bit perplexed. “My first reaction was that it was mistake, that this guy just published our project like a review,” he explains.

Asking for over $100,000, the fraudulent page had lifted graphics, pictures and text from the original site, and came with a varied list of perks for anyone who contributed, from beta models to the title of co-founder for anyone who parted with $2,500. Ironically the page author listed himself as “inspired by other people's passion” and liking “being able to take an idea and turn it into a reality.” He posted updates about hardware and support development, even shipping details. Some were quite detailed so it’s hard to tell whether it was an elaborate ploy or he really intended to manufacture the product. Not that idea theft is much better than a good old fashioned scam, mind. 

Max tried to get in touch with the man who was listed as the campaign founder, but to no avail. “We tried via Google, LinkedIn, and published an open comment on his wall, but he deleted it.” Contacting Indiegogo directly had mixed results. “We wrote to them, explained the situation. They just recommended that we submit a complaint. We live in Russia and it’s very difficult to find here a lawyer who knows US law.” Max showed me the email from Indiegogo. It reads:

We take the rights of copyright holders very seriously and comply with the DMCA (Digital Millennium Copyright Act). If you believe that a copyright owned by you or someone you represent is being infringed upon by its placement on Indiegogo, please submit a complaint that complies with the DMCA, and we will respond accordingly.

Shortly after Max’s attempts to reach out, the Indiegogo page was altered to include a link back to the original concept site, but still no contact had been made. Luckily, the project didn’t make its goal and no money was exchanged due to the type of the campaign. “Our biggest worry was the thought that people believed this person and gave him their money.”

Max hopes that he will one day be able to launch the product himself, but says he hasn’t lost faith in crowdfunding as a concept. “We have just changed our opinion about Indiegogo. We think that Kickstarter is not bad platform, we know people who raised money for projects there. If we used the same sort of sites in the future we would rather use Kickstarter.”

Tip Of The Iceberg

As it turns out, this type of fraud isn’t uncommon. Numerous projects have been lifted from one funding site and listed on the other, not to mention the occasional scammer promising the world on a platter. On the very weekend that we published a piece on the 3D printing company, Pirate 3D, and their ‘Buccaneer’ printer on Kickstarter, a fake version called the ‘Burclader’ appeared on Indiegogo.

“We found out about the Burclader project through our Kickstarter backers who alerted us to it,” says Roger Chang, the company’s Chief Executive Pirate. “We were surprised and amused, because barely a month had passed since our Kickstarter campaign concluded.”

They were no doubt attracted by the $1.4 million the campaign raised in just 30 days, smashing its goal by 1400%, and the general hype around 3D printing at the moment. “They probably thought at the point of time that there was still quite a bit of buzz with our product. Additionally, we were not taking additional orders since we wanted to nail down our production aspects first.”

Chang says he was unaware these sort of scams happened, but unlike Max’s attempts, he had no trouble getting the campaign taken down. Though he was unable to get in touch with the fraudulent campaign founder, the page was pulled after emailing Indiegogo. When asked if he thought it was made easier for him because of the reputation as a successful crowdfunding campaign, he replies that it’s a possibility. “We had a legit campaign as proof that the Burclader was a scam,” whereas Max didn’t, which may be the key difference in their experiences.

When asked for comment a representative for Indiegogo said, “Indiegogo takes trust and security very seriously and prides itself as being a leader in the field of trust and security. We have more systems in place to combat fraud than any other platform.” On the specific cases: “Any time there is a trust or safety breach on Indiegogo our fraud and legal teams collaborate to take the appropriate measures. We cannot discuss the specifics of any individual situation in order to protect the integrity of any potential investigation, but I can tell you that no money was disbursed in either of these cases.”

Much like Max, the whole ordeal hasn’t changed Roger’s view of the system, even when it comes to the barriers in place to prevent fraud. “I personally believe there’s a balance to this. Too many barriers will stifle creative new projects that may not be able to move into the production stage yet,” he says. “Too few barriers will allow a lot of half-baked and scam projects to go up. It is difficult to get a tech project up on Kickstarter with their stringent requirements, so some projects like the recent Ubuntu Edge ended up on Indiegogo instead.”

Kickstarter traditionally requires ‘a clear goal’ that ends with a finished product, while Indiegogo is more open to concepts and ideas, such as causes and foundations. “Having a few different sites with different levels of barriers is ultimately good. The public can then back projects on stringent sites to have peace of mind, while being able to support iffier but perhaps more innovative projects on less stringent sites.”

So has the experience changed how Roger raises funding? “Not really. Crowdfunding is awesome, and we will do it again.”

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Dan Swinhoe

Dan is a journalist at CSO Online. Previously he was Senior Staff Writer at IDG Connect.

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