Don't fall for crowdfunding con

Cyber Security - Has It Clicked?

17 Nov 2015

Crowdfunding is becoming an increasingly popular way for individuals, businesses and campaigners to get ideas off the ground.

However, if you are looking to support new talent, make sure you don’t fall for a con artist.

As part of Humberside Police’s Cyber Security – Has It Clicked? campaign, Det Sgt Mike Wood, from the force economic crime unit, has shared a warning from officers with the National Fraud Intelligence Bureau (NFIB) that fraudsters are looking to target crowdfunding boiler rooms to exploit well-meaning investors.

He said: “Crowdfunding is a legitimate way for people and businesses to raise money, using the internet to contact thousands, if not millions, of people to invest smaller amounts of money rather than asking a few people to make a large investment.

“Those looking for funding usually set up websites and use social media – as well as more traditional networking through family and friends – to spread the word about their plans and invite people to get involved.”

There are three types of crowdfunding:

Donation or reward – This sees people donate because they want to support the organisation or cause. In some cases, free gifts or concert tickets are offered as rewards, but most donors expect nothing back.
Debt funding or peer-to-peer lending – Investors are able to lend money to good causes, bypassing the banking system and expect their money to be returned with interest.
Equity crowdfunding – Investment in exchange for shares or a small stake in the business.

However, a convicted fraudster told the NFIB: “Commission or charges of 80 per cent for crowdfunding and peer-to-peer lending will be the next biggest fraud boiler rooms will utilise as it’s difficult to regulate.”

He also warned those who had been targeting international crowdfunding boiler rooms would be likely to return their attention to the Uk.

DS Wood added: “The Financial Conduct Authority does regulate peer-to-peer and equity-based schemes, but considers them to be high risk, and it doesn’t regulate donations or rewards.

“To protect yourself from risk you should make the same checks you would before making any kind of investment.

“Look into the person or business looking for funding to see if they are legitimate.

“You also need to ensure you are happy with the level of risk you are exposing yourself to and the value for money offered by the investment after charges, taxes and allowance for defaults. Take advice from an independent legal or financial advisor before you commit.

“It’s also worth bearing in mind that if something seems too good to be true then it probably is and to remain wary if you get a call out of the blue.

“If you’re in doubt, don’t worry about being polite – just hang up.”


For more information on keeping yourself safe online, keep checking, follow @humberbeat #HPcybercrime on Twitter or like the Humberside Police Facebook page.