Crowdfunding Scams & Fraud

Scam Alert: One in Ten Crowdfunding Campaigns Appear to be Fraud that Exploits Compassion and Trust – A Consumer Alert

Author’s Note

Generosity creates opportunities for meaningful assistance, and criminals exploit the trust that makes that assistance possible. Crowdfunding deserves scrutiny that protects both donors and legitimate beneficiaries. Clear distinctions between fraud, misuse, and unsuccessful projects support responsible interpretation of the evidence, while independent verification helps ensure that emotional urgency does not replace sound financial judgment.

Overview

Crowdfunding has become one of the most common ways people ask for help. Families use it to pay for cancer treatment, funerals, and emergency surgery. Communities use it after fires, floods, and shootings. Inventors use it to launch new products before they reach store shelves. The scale is enormous. GoFundMe reports more than $40 billion raised from over 200 million donations, and Kickstarter reports $9,358,572,575.00 in total pledges. That much money moving on trust alone draws criminals, and the evidence shows they have found it.

A campaign’s presence on GoFundMe, Kickstarter, Indiegogo, or another recognized platform does not prove its story is true. It does not prove the organizer will spend the money as promised. The SCARS Institute’s review of independent research points to a sobering working estimate: roughly one in ten crowdfunding campaigns involves fraud, deception, or the misuse of donated money. That figure appears to stand about one hundred times higher than the number the largest platform gives the public.

The Number Everyone Repeats

For years, news stories and safety guides have repeated a single reassuring figure. GoFundMe’s CEO told NBC News that “less than 1/10th of 1 percent of campaigns result in any type of misuse.” In plain terms, the company claims fewer than one campaign in a thousand involves fraud.

That figure comes from the company itself. No outside auditor has verified it, and researchers have noticed something odd about it. It is a statistic that has not changed since the platform’s inception in 2010, even as the platform grew from a small startup into a global giant. Researchers also note the claim has not been substantiated with transparent reports by GoFundMe or other crowdfunding platforms.

The platforms have a clear reason to keep that number low. Independent researchers explain the conflict directly: a platform’s revenue is directly proportional to the number of transactions it processes, and if a platform is transparent about how much fraud it has, it may discourage potential donors from participating. A company that earns money on every donation has little incentive to publish evidence that would slow donations down.

What Independent Research Found

When researchers stopped relying on company statements and examined campaigns themselves, they found a very different picture.

A team of researchers, including authors from the London School of Economics, manually reviewed hundreds of health-related campaigns from GoFundMe, Indiegogo, and three other major platforms. Their published conclusion was striking: the prevalence of fraud in a random sample of medical campaigns is approximately 10%, in contrast to 0.1% claimed by crowdfunding platforms. In the larger set they reviewed, they identified 167 examples of fraud, 368 examples of not-fraud, and 105 examples for which the annotators were unable to decide. Medical appeals are not a small corner of crowdfunding. One in three campaigns is intended to raise funds for medical costs.

The product side of crowdfunding tells a similar story. Kickstarter itself invited Wharton professor Ethan Mollick to study how often funded projects deliver what they promised. He found that among funded projects, a failure to deliver accounts for around 9% of all projects, with a possible range of 5% to 14%. His study also found that 8% of dollars pledged went to failed projects. Not every failed project is a scam, but backers rarely get their money back either way. Of projects that completely failed, backers got at least a partial refund only about 13% of the time.

Other sources point in the same direction. A review published by the University of California, Berkeley’s management journal states that as many as 10% of funded campaigns on Kickstarter suffer from fund misappropriation. Indiegogo publishes no comparable delivery figures. One experienced backer’s own review of his projects, anecdotal but specific, found that more than 21% of the technology projects he backed on Indiegogo failed, compared with about 7% on Kickstarter.

Taken together, these findings support a consistent working estimate. Roughly 10 percent of campaigns on donation platforms involve fraud, and roughly 10 percent of funded product campaigns fail their backers or misuse their money. Even Kickstarter’s own commissioned study lands near that figure.

What One in Ten Means in Real Numbers

A 10 percent rate turns a rare problem into a large one. GoFundMe’s medical campaigns alone number about 250,000 campaigns for a total of $650 million in contributions each year. At a one-in-ten rate, that would mean roughly 25,000 fraudulent medical campaigns every year, and potentially tens of millions of dollars taken from donors who believed they were helping a sick stranger.

Even the platforms’ own low figure produces serious losses at this scale. The researchers who found the 10 percent rate pointed out that even the “low” 0.1 percent rate, in a billion-dollar industry, can amount to tens of millions in defrauded funds every year. At ten percent, the losses grow by a factor of one hundred.

Why Most Crowdfunding Fraud Is Never Counted

Crowdfunding fraud stays hidden for a simple reason: most donors never find out. A person who gives $25 to a stranger’s cancer appeal almost never learns whether the illness was real or whether the money reached a hospital. The platform’s fraud figure can only count cases someone noticed, reported, and proved.

Adrienne Gonzalez, an investigative journalist who runs the watchdog site GoFraudMe, has tracked this problem for years. Working largely from tips, she uncovered more than 220 scams in just over three years. She rejects the claim that this fraud is rare: “I wouldn’t have anything to do all day if it was that rare.” She also explains why no one can keep up: “It’s impossible to police the site because a new campaign goes up every 18 seconds.” She calls the refund guarantee “sort of a false sense of security,” because most donors will never know if their money was misused, let alone ask for a refund.

Consumer advocates share that view. Ira Rheingold, executive director of the National Association of Consumer Advocates, said, “I don’t think anyone’s got their arms around it. And the GoFundMes of the world pooh-pooh it.”

Research on product crowdfunding adds another troubling finding. A study of Kickstarter and Indiegogo fraud cases published in the Journal of Business Ethics found that the fraud campaigns raised statistically significantly more money than the non-fraud campaigns. Criminals do not cut corners on presentation. They write the most moving stories and promise the most exciting products, and that is exactly why they collect more.

The Most Common Crowdfunding Scams

Fake or exaggerated illness

The most common scheme involves inventing or inflating a medical emergency. Researchers Marco Zenone and Jeremy Snyder of Simon Fraser University studied 52 publicized cases of medical crowdfunding fraud. They found faking or exaggerating one’s own illness (29 cases), faking or exaggerating another’s illness (7), impersonation (8), and misapplication of funds (8). Criminals post hospital photos, write regular updates, and describe worsening symptoms to keep donations coming. In one documented U.S. prosecution, Jennifer Flynn Cataldo falsely claimed terminal cancer and solicited donations through GoFundMe and other channels. She pleaded guilty to fraud and received a prison sentence.

Copied campaigns and impersonation

Another common scheme copies a real tragedy. A criminal takes photographs and details from news coverage, social media, or a legitimate campaign, then launches a competing fundraiser. The tragedy is real, but the organizer has no connection to the victim. The Federal Trade Commission warns that crowdfunding scammers use stolen photographs and copied stories, especially when public attention turns to disasters. Gonzalez calls disasters “one of the riskiest types of GoFundMe fraud,” and warns that campaigns which pop up within hours of a news story deserve extra caution.

Diverted funds

Some campaigns describe a real person with a real need, but the organizer keeps the money. The beneficiary’s existence does not prove the organizer’s honesty. The best-known example involved a New Jersey couple who raised more than $400,000 on GoFundMe for a homeless veteran and were accused of spending it on lavish vacations, a new BMW and more. GoFundMe prohibits deception about an organizer’s identity, the organizer’s relationship to the beneficiary, and material facts in the story, but those rules only work when someone catches the violation.

False stories wrapped around real needs

Even a sympathetic story can hide deception. This week, GoFundMe removed a viral fundraiser for a Texas man paying his wife’s cancer bills after its Trust & Safety team identified factual misrepresentations. Before removal, it had raised $739,334 from a total of 13,000 individual donations. GoFundMe refunded the donors, but only because someone sent a tip and investigators acted on it. Most deceptive campaigns never receive that scrutiny.

Product crowdfunding fraud

Product campaigns create a different opportunity. Creators promise an invention, show polished videos, and collect pledges without ever delivering. The Federal Trade Commission’s case against iBackPack involved more than $800,000 raised on Indiegogo and Kickstarter. The FTC alleged that the operator spent the money on personal expenses and marketing instead of delivering the promised products. A settlement permanently barred him from crowdfunding.

Who These Schemes Target

Crowdfunding fraud targets the best impulses people have. It aims at compassionate donors, at neighbors who rally around a local family, at people moved by a national tragedy, and at early adopters excited by new technology. Familiarity adds false credibility. A campaign shared by a friend feels safer than a stranger’s request, but the friend who shared it rarely verified the organizer or the beneficiary. Large donation totals, emotional comments, and moving photographs prove that a campaign got attention. They do not prove it tells the truth.

How Donors Protect Themselves

Donors protect themselves best before they give, not after. The SCARS Institute recommends these steps:

• Identify the organizer. Confirm who created the campaign and how that person connects to the beneficiary. Search the names of both, and check whether their social media shows a real relationship.
• Verify the story independently. Search the campaign’s photographs to see whether they appear elsewhere under other names. Look for news coverage, obituaries, or statements from family that confirm the facts.
• Ask people who actually know. When a friend shares a campaign, ask what they personally know. Sharing is not verification.
• Slow down after a tragedy. Treat campaigns that appear within hours of a disaster or news story with extra caution. For disaster relief, established organizations with experience in that kind of response offer a safer path.
• Know who controls the money. Find out who withdraws the funds and how they reach the person in need. Unanswered questions about the money are reason enough to hold back.
• Keep payments on the platform. Never send money directly to an organizer through gift cards, cryptocurrency, wire transfers, or payment apps outside the platform.
• Treat product pledges as risk, not purchases. A pledge to a product campaign carries a real chance of loss. Pledge only what you can afford to lose.

What Platform Protections Do and Do Not Do

Platform protections offer recourse, but they have limits. GoFundMe’s Giving Guarantee provides a process for reporting misuse and requesting refunds, generally within one year of donating and subject to its policy. That protection only helps donors who discover the fraud, report it, and meet the deadline. Since most donors never learn what happened to their money, the guarantee cannot reach most fraud. Kickstarter offers no refund guarantee at all, and refunds after failed projects remain rare.

Verification before payment remains the only reliable protection. Donors who suspect fraud should report it promptly to the platform, to their state attorney general, and to the Federal Trade Commission at ReportFraud.ftc.gov. Reports help remove fraudulent campaigns and build the record that regulators and prosecutors need.

Generosity With Open Eyes

Crowdfunding still does real good. Millions of people have received help they could not have found any other way. The answer is not to stop giving. It is to give with the same care people use for any other financial decision. One in ten is not a rare exception. It means that a donor who gives to ten campaigns this year will likely support at least one that is not what it claims to be. Compassion deserves protection, and in crowdfunding, that protection begins with verification.

About these estimates: No platform publishes audited fraud figures, and no study has measured crowdfunding fraud across every campaign on every platform. The SCARS Institute’s working estimate of about 10 percent rests on independent research that found roughly 10 percent fraud in a random sample of medical campaigns, Kickstarter’s own commissioned study finding about 9 percent of funded projects fail to deliver, and published estimates of up to 10 percent fund misappropriation among funded Kickstarter projects. Rates likely vary by platform, campaign type, and year. Dollar figures in this article that apply the 10 percent rate are illustrations, not measured losses.

Conclusion

Crowdfunding places financial decisions inside emotionally compelling stories. A sick child, a grieving family, a displaced community, or an exciting invention creates an immediate reason to contribute. Criminals exploit that response by fabricating needs, borrowing identities, copying legitimate appeals, and diverting money intended for others. The reputation of a fundraising platform does not establish the honesty of every organizer, and a campaign’s popularity does not verify its claims. Compassion remains valuable, but responsible giving requires independent judgment.

The available evidence also demands careful distinctions. Company-reported misuse figures, research estimates of campaign fraud, and product fulfillment failures measure different outcomes. The SCARS Institute’s working estimate draws attention to a substantial concern, while differences between platforms, campaign categories, and research methods limit its application. Illustrative loss calculations do not establish measured losses. These limitations reinforce the importance of transparent reporting and stronger accountability throughout the crowdfunding industry.

Donors exercise their greatest control before transferring money. Identifying the organizer, confirming the beneficiary’s connection to the campaign, checking the underlying story, and understanding who receives the funds provide a stronger basis for a decision. Refund policies and complaint procedures offer recourse after problems emerge, but their usefulness depends on discovery and timely action. Thoughtful verification preserves the purpose of generosity by directing assistance toward genuine needs. A person’s willingness to help deserves respect, and that willingness deserves protection from those who deliberately turn suffering into an opportunity for theft.

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