Crowdfunding, Keeping Digital Criminals at Bay

by Trustiser

Crowdfunding Keeping Digital Criminals at Bay

As crowdfunding is gaining popularity as a means of raising money in the digital world, thanks to the rules under consideration by the U.S. Securities and Exchange Commission under the 2012 JOBS Act, trust and reputation management in relation to online collaborative funding is becoming a serious issue.  Indeed, both donation-based crowdfunding and investment-based crowdfunding attract digital criminals.

More precisely, donation-based crowdfunding services, provided by sites such as Kickstarter and Fundly, and investment-based crowdfunding services, provided by sites like AngelList and MicroVentures, are prone to:

  • digital scamming where scammers create fake projects to steal money from the backers.  In one case last year, one large crowdfunding site almost handed over $120,000 to a fake start-up.  There were more than 3,000 backers involved;
  • digital money-laundering where  “dirty” money coming from criminal activities is invested through equity, debt, or tax deductible donations.

In this context, proper trust and reputation management strategies should be implemented by crowdfunding sites.  In our view, an efficient trust and reputation strategy, that aims to detect fraudsters preemptively, has to combine:

  • human intelligence-based approaches that implement formal due diligence and vetting processes;
  • algorithmic-based approaches that automatically analyze the credentials provided by each participant,  monitor the participants’ activities and reputation in digital arenas such as social networks and digital marketplaces, and whenever possible check their track records within other crowdfunding sites. 

Rafik Hanibeche & Adel Amri (Trustiser Founders)