Crowdfunding Scams: What Are They, Examples and How to Avoid Them

We can say that crowdfunding has revolutionized the way projects are financed. This method has proven to be an accessible and collaborative alternative for entrepreneurs, social causes, and creatives worldwide. However, with its growing popularity, risks have also emerged, with fraud being one of the most concerning.

From fictitious campaigns to the misuse of funds, crowdfunding fraud impacts both contributors and the trust in this innovative collective funding tool.

To avoid falling into these traps, it is crucial to understand how it happens, recognize the signs, and adopt preventive measures.

In this article, we’ll show you the landscape of crowdfunding fraud, how to identify it, and most importantly, how to prevent it to keep this model a reliable source of support and innovation.

What is crowdfunding fraud and why does it happen?

Crowdfunding has become a key tool for financing creative projects, social causes, and even personal initiatives. However, this form of collective funding is not without risks, and one of the most significant is fraud.

Crowdfunding fraud occurs when malicious individuals or entities create false or misleading campaigns to obtain money illegally. This includes non-existent projects and the misuse of the funds raised. These practices harm donors financially and erode trust in this funding model.

Main reasons behind crowdfunding fraud

🔎 Lack of regulation on platforms

The rise of crowdfunding has often outpaced the existing regulatory framework. This allows some campaign creators to bypass basic validation or oversight processes.

🔎 Anonymity and difficulty verifying identity 

On many platforms, creators can register with false information. In other words, without a secure identity verification system like KYC (Know Your Customer) or KYB (Know Your Business). This makes it easy to deceive both platform administrators and users.

🔎 Exploitation of emotions

Fraudulent campaigns often appeal to emotional causes (family emergencies, natural disasters, medical issues…) to attract donor attention. A recent case revealed how a family created a fake campaign claiming they needed funds to treat an injured relative, raising thousands of euros before being discovered.

🔎 Lack of transparency in the use of funds

The absence of mechanisms to track the funds raised opens the door to misuse, even in campaigns that initially seem legitimate.

Examples of crowdfunding fraud

Crowdfunding is presented as an attractive option for those seeking to finance innovative ideas, charitable causes, or cultural projects. Below, we present some typical examples of crowdfunding fraud. This way, you can observe how they can impact donors and platforms.

1. Campaigns for non-existent causes
As mentioned earlier, a common case of fraud is the use of fake stories to appeal to emotions.

2. Projects that never materialize
Some campaigns present ideas for innovative products or services that seem too good to be true… and they are. In these cases, creators launch a campaign with ambitious promises and disappear once they obtain the funds.

3. Fundraising for fake organizations
Fraud also affects the charitable sector, where scammers create fictitious NGOs or pose as recognized entities to solicit money. A current example is the scam that emerged after the DANA disaster: “This is the new scam that empties your pockets with donations for those affected by DANA, impersonating an NGO.“

4. Misuse of funds
Even when campaigns seem legitimate, creators may allocate the money to purposes other than those promised. This damages the trust of donors and the platforms that facilitate these initiatives.

5. Fake crowdfunding platforms
In some cases, fraud doesn’t come from the creators but from fraudulent platforms that pretend to be legitimate intermediaries. These sites often copy the design of recognized websites, attracting unsuspecting users to steal their donations or personal data.

How to prevent crowdfunding fraud

Fraud in crowdfunding also jeopardizes the credibility of this financing model. Fortunately, there are key steps that platforms and users can take to reduce risks and ensure secure transactions:

✔️ Verification of identity and legitimacy of creators
One of the first steps to prevent fraud is ensuring that campaign creators are real people or legitimate entities. This is especially crucial for crowdfunding platforms.
🔸 How KYC and KYB verification helps: Verification tools, such as those offered by Silt, allow creators’ identities to be confirmed through processes like facial and document verification. This ensures that funds are linked to authentic individuals or registered companies.
🔸 Impact: Platforms that implement these measures build trust with donors, who can be assured that their money will reach reliable hands.

✔️ Analyze the project or campaign content
A well-structured project is more likely to be legitimate. Donors should take the time to evaluate the information provided.
🔸 Red flags:

• Vague descriptions or lack of specific details.
• Unrealistic funding goals.
• Use of images or videos that seem generic or manipulated.

🔸 Silt’s recommendation: If the campaign appeals solely to emotions without providing clear data, it’s best to investigate further. For example, look for external references about the cause or the creator’s background.

✔️ Payment methods and platform security
How financial transactions are handled is a key indicator of a campaign’s reliability.
🔸 Secure platforms: It is essential to use sites that work with reliable payment gateways, such as recognized banks or providers with trusted encryption.
🔸 Requested information: Serious platforms request basic data such as full name and, in some cases, tax information. This not only helps ensure transparency but also protects against scams.

✔️ User education and platform transparency
Education is a powerful tool against fraud. Platforms should encourage transparent practices and provide users with resources to make informed decisions.
🔸 Responsible platforms: Those that pre-validate projects and profiles as a standard step inspire greater trust.
🔸 Conscious users: Donors should seek campaigns on recognized platforms committed to transparency and identity verification.

As we have seen, crowdfunding is a means that allows individuals and organizations to finance transformative ideas and important causes. Despite its great power, fraud remains a significant risk in these practices. Preventing it requires the collaboration of platforms, creators, and donors.

The implementation of technological solutions such as facial verification KYC and KYB, detailed campaign analysis, and a commitment to transparency are key steps in building a secure ecosystem.

As a user, researching, asking questions, and trusting only reliable platforms can make a difference in your experience.

Take security to the next level with Silt

At Silt, our mission is to ensure that every transaction is secure and trustworthy.

Discover how our advanced verification solutions can protect your platform and, most importantly, your users from fraud. 😉​🩵