Here’s how crowdfunding works: People called “creators” ask for small amounts of money from lots of people to fund projects through websites like Kickstarter or Indiegogo. In exchange, creators offer rewards to contributors, like a product that the creators are trying to make. Sounds great…unless the creators don’t create anything but profit for themselves.
In its lawsuit against iBackPack, the FTC says people shelled out more than $800,000 via crowdfunding campaigns. The company said those funds would help it provide consumers with backpacks and shoulder bags with built-in batteries for charging mobile devices. But, according to the FTC, iBackPack’s claims that bags would soon be going out to consumers were lies. What’s more, the FTC’s investigation found that the money the creators took in from their campaigns generally didn’t go toward what they said it would. Instead, the FTC says, iBackPack’s CEO pocketed a large part of the funds for his own personal use. And when people began to complain, the CEO allegedly threatened some of them – adding that he knew their addresses and other personal information.
If you’re thinking about contributing to a crowdfunding campaign, take a minute to research the creator’s background and reviews before you pay. For example, has the creator engaged in previous campaigns? How did those campaigns turn out?
If you learn about a crowdfunding scam:
- Report it to the Federal Trade Commission.
- Report it to your state Attorney General.
- Warn other people by commenting on the creator’s profile on the crowdfunding site.
- By Lisa Lake, a consumer education specialist with the Federal Trade Commission.
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