Buyer beware: Crowdfunding can be risky - New York News

Buyer beware: Crowdfunding can be risky

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CHICAGO (FOX 32 News) -

"Crowdfunding” is booming right now. It's a popular means of obtaining financing for everything from movie projects to wedding parties.

Instead of deep-pocket investors, it relies on a large pool of donors providing small amounts of support through websites, but be cautious so you don’t get ripped off.

The former PBS series Reading Rainbow used a crowdfunding campaign to raise over a million dollars in just 24 hours to get back on the air.

However, not all crowdfunding stories have happy endings.

Last month, the Washington attorney general filed a lawsuit alleging that Nashville company Altius Management used crowdfunding to collect pledges from consumers who expected to receive decks of retro-horror playing cards in return. The company allegedly raised more than $25,000, but never delivered the decks of cards.

So, is there any way to guarantee that your crowdfunding dollars will be used as promised?

“Can you actually guarantee it? No. I think you have to go into it with the fact that it's, it’s not guaranteed,” said attorney crowdfunding expert Anthony Zeoli.

He points to the Altius Management case as an example of the risks involved, but says overall, crowdfunding has a good track record. For one, major crowdfunding websites keep an eye on what's being offered.

“They are actively monitoring the campaigns that go up. To pinpoint a lot of the frauds, and a lot of them get taken down very quickly,” Zeoli said.

Recently, FOX 32’s Lisa Chavarria profiled two couples using crowdfunding for more personal campaigns - one seeking pledges toward a new fertility treatment and the other seeking help for an adoption. Zeoli said fraud in such personal cases is rare, because donors follow the campaigns very closely and share information.

“When you are dealing with a social network, you have a couple of hundred people looking at this one project, and they are nitpicking everything about it,” Zeoli added.

Zeoli said one of the best ways to protect yourself is to choose crowdfunding projects that promise to return your pledge, unless the full fundraising goal is achieved.

Other experts say never invest more than you're willing to lose.

For more on this topic in Illinois, you can check out Zeoli's website.

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