As formally defined by Merriam-Webster, crowdfunding is “the practice of obtaining needed funding (as for a new business) by soliciting contributions from a large number of people especially from the online community.” As evidenced by the definition, crowdfunding is not strictly used for assistance or social reforms. In fact, since 2012, crowdfunding has also been used to assist businesses in raising capital outside the traditional bounds of public offerings and/or loans and is regulated by the U.S. Securities and Exchange Commission. (Crowdfunding History, Fundable (last visited Apr. 25, 2023).)
Although crowdfunding can be used for a multitude of purposes, the focus of this article is on charitable crowdfunding platforms and the dangers posed by involving oneself in charitable crowdfunding without fully investigating the veracity of the purported causes or charities. It is likely that most creators of charitable fundraisers do so with good intentions, but there are, as evidenced in the news, individuals who seek personal gain from the heartbreak and despair of others. Furthermore, as there are few vetting procedures for someone seeking to create a fundraiser on a charitable crowdfunding platform, most fraud goes undiscovered until after it occurs, leaving the situation to be remedied rather than prevented. However, there are laws and regulations in place designed to protect individuals seeking to contribute to charitable crowdfunding platforms, and it is important to avail yourself of the regulations to better protect yourself should you decide to engage in charitable crowdfunding.
History of Crowdfunding and Its Rise in the Age of Technology
Although world interconnectivity and media hype have certainly accelerated the pace of charitable crowdfunding, it is hardly a contemporary concept. Crowdfunding had its humble beginnings centuries before the advent of modern technology. For example, sources date crowdfunding back to Ireland in the 1700s, when Jonathan Swift was deemed the “father of microcredit” for providing loans to low-income families with little or no credit history in rural areas. (Id.) Even today, crowdfunding can be seen in local communities through community fundraisers or bake sales. However, in the current age of technology and the modern, ever-connected world, charitable crowdfunding has taken on a life of its own and is a business model in and of itself.
Although GoFundMe is the most notable crowdfunding platform in our technological age, it was neither the first platform nor the creator of modern crowdfunding as it is known today. In the early 2000s, musical artists used ArtistShare, a platform that allowed fans to contribute capital directly to the artists. ArtistShare was later followed by Kickstarter and IndieGoGo in the late 2000s. (Id.) Then, in or about 2008, GoFundMe’s developers, Brad Damphousse and Andy Ballester, emerged with a platform identified as CreateAFund, which in or about 2010 transitioned into GoFundMe. (Kathryn Underwood, GoFundMe Takes Down Canadian Truckers’ Fundraising Page, Market Realist (Feb. 7, 2022).)
GoFundMe and other similarly situated crowdfunding platforms have been enlisted to provide tuition assistance, funding for expensive medical treatments, and much more. Today, some of GoFundMe’s most notable fundraisers include those providing financial assistance to low-income families, the families of victims of mass shootings, and frontline workers during the COVID-19 pandemic. (Emma Kelly, The 11 Biggest GoFundMe Fundraisers Ever, Newsweek (Oct. 13, 2021).)
However, as technology has widened the accessible audience for crowdfunding, it has also created an environment in which fraudulent behavior is easily perpetrated.
Things Are Not Always What They Seem. —Phaedrus (Plato)
Despite the good intentions on which these philanthropic crowdfunding companies base their missions, there are also many fraudulent actors who play on the sympathies of unsuspecting strangers to extort money and turn a quick buck on the misfortune of others. No longer is the charity or individual recipient local or easily and readily identified; no longer is someone you know gathering and managing the funds. Often, the individuals supported are hundreds if not thousands of miles away, with no personal connection to their supporters whatsoever, which makes substantiating claims of need more difficult and perpetrating fraud much easier.
According to GoFundMe’s website, “[a]n overwhelming majority of fundraisers on the site are safe and legitimate, as fraudulent fundraisers make up less than one-tenth of 1% of all fundraisers on GoFundMe.” (How GoFundMe Protects Donors from Fraudulent Fundraisers, GoFundMe (last visited Apr. 25, 2023).) Yet, according to GoFundMe’s own CEO, the company is reactive, not proactive, in vetting for fraudulent activity. (Nathan Heller, The Hidden Cost of GoFundMe Health Care, The New Yorker (June 24, 2019).) In fact, based on the company’s website, it relies on users to be aware of and to report suspicious activity. Furthermore, for individuals in the United States, there are almost no requirements besides proving one’s identity that must be met before GoFundMe disperses the accrued funds to the organizer. (Requirements to Receive Funds, GoFundMe (Apr. 21, 2023).)
With so few preventative protections in place to stop fraud before it occurs, it does occur, and it is not hard to find news stories demonstrating the ill intention of others. Furthermore, the instances where fraud is perpetrated truly offend the sensibilities of human decency. In 2022, a New Jersey woman, along with her co-conspirators, was found guilty of using a homeless man’s story to scam unsuspecting individuals out of approximately $400,000; she used this money not to help the homeless man but instead to fund vacations, gambling, and designer wear. (Kiely Westhoff, Woman Sentenced to Three Years in State Prison for Collecting $400,000 in Viral GoFundMe Scam, CNN (Jan. 8, 2023).) Another example stems from a woman in Alabama who falsely claimed over a period of years to have terminal cancer and thereby fraudulently solicited more than $260,000 via her GoFundMe account. (Press Release, U.S. Att’y’s Off., N. Dist. of Ala., Shelby County Woman Sentenced to 25 Months in Prison for Fraudulently Raising Money on False Cancer Claim (Nov. 8, 2017).) Not only did she deceive many strangers online through her fraudulent claims and false updates on her condition, but she went a step further, leading her family and even her minor child to believe that she was diagnosed with a terminal condition. (Id.)
The stories above are heart-wrenching and are just a snippet of what transpires below the surface of charitable crowdfunding platforms’ success stories. As more fully discussed below, there are regulations currently in place for charities and charitable fundraising; however, online crowdfunding platforms pose new, hybrid concerns due to the interconnectivity previously described.