Imagine supporting a crowdfunding campaign and that those responsible for it don’t keep their promises. Including, without limitation, the rewards they offered. It’s likely that you’re facing a scam and the question arises: What to do? To whom to turn? If this happens, here we present the actions and info that can be of help.

How to act in the face of crowdfunding fraud

There’s a key aspect to a scenario of non-compliance by a crowdfunding campaign. It consists in identifying if there’s a legal framework in the country where the crowdfunding platform comes from. Because if there are no laws it becomes more complicated to achieve any results. Since there are no elements that require action by the State.

Distinguish between scam and bad management

According to an article by crowdfunding consultant Valentí Acconcia, one must recognize what is scam and what isn’t. A scam occurs when the creators of a campaign deliberately deceive their audience. Also, when the crowdfunding campaign doesn’t respect the rules of the platform where it’s hosted. Or, when the rewards aren’t delivered with prior deception. Ergo, the creators of the campaign knew that they couldn’t deliver them.

This has to be said because many people tend to accuse a campaign of fraudulent due to delays. But that’s not necessarily the case, one of them was the Coolest Cooler. A multifunctional ice chest that raised more than $13 million in 2014. After its success, demand increased and in the end more than 30,000 people waited 3 years without receiving the product. This isn’t considered a scam since it wasn’t an intentional delay, but rather, it was a bad management.

Zano Crowdfunding Scam
Zano was a palm-sized drone developed by Torquing Group. After raising £2,335,119, they were unable to deliver functional products at the end and were accused of being a scam. The company ended up filing for bankruptcy. Source: Slimdesign

Check the rules of the platform but especially the country

Each crowdfunding platform has its own rules, terms and conditions, and so on. Some of them are released from any responsibility in case a campaign is a fraud. But they offer alternatives such as the possibility of granting the contact information of those responsible for the campaign, among others. While most platforms force campaigns to be honest, this doesn’t always guarantee that there’s justice.

It’s your duty to investigate if in the country where the crowdfunding platform comes from, there are laws on the matter. As a minimum mode of reference, in the United States there are general laws (depending on the state) that prohibit fraud and false advertising, specified the US Code. Laws to which all commercial transactions in that country are subject, including reward-based crowdfunding.

Regarding Spain, there are no laws that explicitly mention fraud or scam in crowdfunding. But there are laws that punish fraud within the Criminal Code, particularly Article 248. Which states that “those who for profit, use enough deceit to produce error in another, commit fraud”. Among other laws such as the Commercial Code or the Capital Companies Act.

how to legally act against crowdfunding
It’s easier to act against a scam in a crowdfunding campaign that’s still ongoing. Once it’s over, you must resort to conventional laws. It’s advisable to consult an attorney or jurist from the country where the crowdfunding platform comes from in such case.

If you’re going to make a report, do it as a group

If you were a victim of crowdfunding fraud, you certainly weren’t the only person. Other contributors were also affected by it, for that reason it’s good to join forces. Get in touch with people that you know have also contributed to the campaign. Try to create a group or be part of one where they talk about the subject to make a collective complaint.

That way when you contact the relevant authorities, they’re more likely to take action on the matter. In the best of cases, the platform could paralyze the campaign if it’s still ongoing. If the campaign is over, it may seem more difficult because the money has already been delivered. But by going to the authorities, it’s possible to penalize those responsible so that they return the money or receive a punishment at least.

The main way to protect against fraud is prevention. When you’re going to contribute to a crowdfunding campaign, research all your information until you’re satisfied. In fact, crowdfunding is quite immune to fraud because it’s more public. The more information, external links and notoriety of those responsible have a campaign, much less likely to be fraudulent.

Thanks for reading this entry, we hope you liked it! We invite you to share it on your social networks so that your friends can learn more about the subject and help us to reach further.

Related: What Is Private Crowdfunding?

Always evaluate a campaign well before contributing!