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Online Crowdfunding Platforms Vulnerable to Fraud

Friday, March 06, 2015

 

Entrepreneurs, authors, patients struggling with medical bills, musicians and pet owners in Oregon have something in common. They all use crowdfunding -- small contributions from a large number of people -- through online sites to raise money for various needs. 

With thousands of active crowdfunding campaigns in Oregon, on an increasing number of online platforms, experts warn that the services are vulnerable to fraud, which are largely covered against consumer recourse. 

A Portland Couple is trying to raise $25,000 on gofundme to pay for in vitro fertilization. Photo: gofundme via Jein King

“We are aware of the potential of abuse [and] misuse with crowdfunding platforms,” said Federal Bureau of Investigation (FBI) Portland spokeswoman Beth Anne Steele. 

While Steele said the FBI has not received any tips related to significant cases of criminal activity related to crowdfunding, the bureau is encouraging anyone with information to come forward. 

Parameters for sites like Kickstarter, Indiegogo, and gofundme vary. Users set up a campaign to raise a set amount of money, or fundraising goal, along with a pitch. People who pledge money in different increments are eligible for different incentives, ranging from t-shirts, key-chains and albums to the fully-realized product. 

Startups 

One group that frequently turns to crowdfunding is Portland’s up-and-coming community of tech-minded entrepreneurs. A lack of trust for crowdfunding platforms, bred by lawsuits against campaigners on staple sites including Kickstarter, could hurt Portland’s growing startup community. 

Ken Westin, a senior security analyst at IT security firm Tripwire, said the success of a crowdfunding campaign depends on trust. Supporters must have faith in both the campaign, and the platform, he said. 

“That trust factor is critical to succeed in business, it has a significant impact on the ability to raise funds,” he said. 

Westin said he has seen some Indiegogo pages claiming to raise money for a cancer patient that were apparently false. 

“They find ways of manipulating emotions, and when they do those things, it hurts really good companies with good intentions,” Westin said. 

Kickstarter and Indiegogo have both taken steps to end crowdfunding scams, or at least make it much more difficult, for fraudsters. 

A Kickstarter project to fund pens made from whiskey barrels. Photo: Kickstarter via John Shatney

“There’s a lot of money flowing through there,” said Multnomah County District Attorney Kevin Demer. He said police have likely taken calls regarding crowdsourcing fraud, but  it would be difficult to determine what jurisdiction they fall under. 

Demer, who works with computer crime, said he has not seen any complaints regarding fraud or money laundering through crowdfunding sites.  

“But I’ve thought about the possibility,” Demer said. 

Washington State Attorney General Bob Ferguson in May 2014 famously sued the man behind a Kickstarter campaign for a deck of cards, who reached his fundraising goal, but never fulfilled the pledges to supporters. 

Consumer protection law expert Michael C. Baxter, an attorney with Baxter and Baxter, LLC in Portland, said there is a recourse for people whose pledges are not fulfilled, under Oregon’s Unlawful Trade Practices Act. 

Each crowdfunding site is different 

Kickstarter’s parameters are more stringent than, for example, gofundme. To launch a campaign on kickstarter, a user’s identity is verified through an automated process using a social security number, the project must be creative in nature, and if the fundraising goal is not met within the 30-day life of the campaign, Kickstarter does not release any funds. In that case, the pledges are not cashed out. In 2014, backers pledged $529 million, funding 22,000 Kickstarter projects. 

gofundme, which has raised $790 million since its launch in 2010, allows private donors to collect funds as they come in, in addition to the “all-or-nothing” campaigns. 

Donations for personal donation campaigns go directly to the payments service account, either WePay or Stripe,  and take between 1-3 days to withdraw from the account, and another 2-5 days to reach a bank account. 

Startup founder Mark Grimes, who has supported 100 projects via Kickstarter, said if a project does not fulfill its pledges, it is not up to Kickstarter to enforce it. 

Grimes pledged on a book two years ago that has not yet fulfilled on its promise. 

“That’s not Kickstarter’s problem, that’s the book’s problem,” he said. “They’re just providing a platform.”

However, Grimes is wary of gofundme, for accountability reasons. 

“I wouldn’t give a dime to gofundme,” he said. 

“It's not feasible for gofundme to investigate the claims stated by each campaign organizer,” said GoFundMe Customer Happiness agent Kelsea via email. But, she said the company investigates “every single” complaint of fraud. 

An Indiegogo spokesperson said the site has a safety team in place, as well as algorithms and other procedures to protect against fraud, or the system being used to launder money. 

Regulators lag behind 

The state’s legislators are slowly responding to the crowdfunding model, in which startup capital is secured through a high number of small contributions. 

Oregon’s recently implemented Intrastate Offering Exemption, under the Jumpstart Our Business Startups Act (JOBS Act),  allows businesses with less than 50 people to receive up to $2,500 from single investors, for a total of $250,000, by selling equity. Kickstarter, for example, “cannot be used to offer equity, financial returns, or to solicit loans,” so the rule does not apply. 

However, no state regulations directly address the oversight of online crowdfunding platforms.

Grimes predicts as crowdfunding advances, platforms will begin to specialize in different categories, such as health care, pets, business, and charities. 

 

Related Slideshow: Twenty Fascinating Research Projects You Should Know About

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Pain Relief

Visually Representing a Patient's Pain 

Brain researchers at OHSU are focusing on how to create a "biomaker" that would allow doctors to visibly observe a patient's pain, the intensity of the pain, and where it hurts.

“Many of people have pain that we can’t explain because we can t see what’s wrong with them. It’s because there’s changes in their brain" the lead researcher of the project, Dr. Mary Heinricher, said. "We’ve been trying to see those changes.”

If an application for the findings can be fully developed, the research will allow medical professionals treating any kind of pain to utilize information from the signals between neurons, which are always happening in the brain.

“It will change how we view pain, from a suspicion of someone complaining of something not real to us understanding them."

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Teaching Girls Classroom Confidence

Researchers at Willamette University are studying how educators can empower female students to believe they're capable of learning in school science labs, or classroom settings.

Educators are hoping the research will help to even the balance between women and men working in advanced sciences.

Prof. Emma Coddington said her research is based in neuroscience, but has applications in teaching.

“It’s insufficient just to have great science - you also need a really great plan for teaching, Coddington stated. "That’s what’s unusual about this grant.”

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Microbes in Your Gut Affect Your Mental Health?

Biology research at the University of Oregon is examining whether microbes in the digestive tract play a role in mental illness.

When something goes wrong with the microbes in a zebrafish's gut, it can cause problems for genes that regulate the development of the central nervous system.

The research could potentially shine a light on the importance of the small intestine. the absorption of nutrients (and medications) in the digestive system.

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HIV Vaccine

Researchers at OHSU's Vaccine and Gene Therapy Institute announced they had created a vaccine for HIV last year. The drug is being tested on a strain of the virus that's prevalent in primates called the Simeon Immunodeficiency Virus, or SIV.

Studies found that the vaccine completely eliminates the virus from the bodies of monkeys, seeking out every virus-infected cell and destroying it.

Doctors are hoping that a modified version of the vaccine will be an effective alternative for humans.

Trials are continuing as the thousands of Oregon residents living with HIV anxiously watch.

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Appetite Suppression 

At the UO, psychology professor Elliot Berkman and his team have discovered techniques to teach people how to block unwanted thoughts - specifically unwanted cravings and impulses to eat fattening, unhealthy foods, as processed foods are what people have the most difficulty resisting, according to researchers.

Participants in the studies have had their brain activity mapped by a full-body MRI machine while they struggled to resist their favorite treats. 

Using cognitive therapy, researchers teach the participants how to resist their impulses by simply doing whatever comes easiest to them. Some of them simply wait for the urge to subside, among other techniques. The goal is to eventually have a participant change their perceptions of problem foods.

“We’re coming together to build innovative new tools that will really impact people’s lives for the better,” Berckman said in a statement.

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Treatment of Parkinson's Disease

One of the many research initiatives at OHSU examines how to teat Parkinson’s Disease, a degenerative brain condition that paralyzes the central nervous system.

Researchers are studying a number of different methods forn ew treatments, including stimulating a patient's brain to regenerate dead neurons. Researchers will also be studying drug treatments and researching genetics.

The goal of the Parkinson Center & Movement Disorders Program is to find a cure for the disease and improve the quality of life of patients whom suffer it, its researchers stated.

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Identifying Genetic Risk Factors for Autism

Genetic researchers at OHSU are hoping to identify Autism's genetic risk factors. 

The frequency of Autism diagnosis in the U.S. has alarmed medical professionals and baffling parents. The CDC reported that one out of 68 children born in the country are diagnosed as being on the spectrum of Autism. 

Parents are hoping that the studies will shed some light on the mysterious disorder.

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Robotic Exo Skelletons Can Help People Walk Again

Researchers in Oregon State’s robotics lab are developing wearable, robotic exoskeletons that could help some people who have lost their ability to walk, like veterans and the elderly, to regain their mobility.

Many of the prosthetics currently being developed would allow a patient to feel sensations and control the artificial body part using only their mind, as if the mechanical device was a natural part of them, according to Dr. Ravi Balasubramanian, the lab's director.

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Teaching Parents How to Educate Their Kids

One of the Willamette University projects is conducting research on teaching for the Oregon Dept. of Education. 

WU Communications Officer Adam Torgeson said the purpose of the study is to identify ways to teach parents how to facilitate their child's learning. 

"When it comes to getting results in early childhood education, sometimes its more effective to teach the parents," Torgeson said.

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Saving Trees From Invasive Insects

The National Science Foundation awarded a team of researchers from the UO Geology Dept. $1.3 million to study the impact of how humans interact with the environment.

The group is examining forestry trends to determine whether climate change played a significant role when trees were killed by pine beetles, an invasive insect in the Pacific Northwest.

Data from the research has indicated that, "tens of millions of trees had died in the region over the last 20 years," due to pine beetle infestations.

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Using Stem Cells to Recover from Heart Attacks

At the OHSU Center for Regeneretive Medicine, Dr. Kenneth Gregory has been studying how stem cells can be used for a range of medical procedures.

Gregory uses the stem cells in a patient's given body part to replace damaged tissue. Heart attacks, for example, causes significant damage to tissue that can be replaced by stem cells that are part of the organ, according to Gregory's research. 

“We didn’t even know that the heart had stem cells," Gregory stated. "Now we know that they’re present in every tissue and every organ of your body."

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Surveillance Robots

At Oregon State, researchers are also developing rovers that can be used for a range of purposes, from exploration to military.

Dylan Haney, who earned his Bachelor of Science degree from Oregon State in 2011, said, the robots could be used by bomb squads, while providing more precisions than current robots used by law enforcement.

The U.S. Dept. of Defense has shown interest in the project, according to researchers.

“It’s pretty amazing how broad the applications are,” Haney said.

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Finding More Efficient Ways to Learn a New Language

At OHSU, study participants are having their brains map while they try to learn a new language.

Researchers said the project measures cognitive activity, and applies the data in an education setting.

The goal of the research is to cut down on the difficulty level and time commitment of learning a new language.

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Improving Speech Impediments 

Similar to the new language initiatives at OSU is the research into improving speech patterns.

Individuals who have trouble speaking will also have their brains' mapped.

Researchers hope to gain a more intimate understanding on how to provide speech therapy.

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Using Nano Robots 

OSU researchers are developing nano robots for tasks that human beings are too big, or too clumsy, to do.

The robots could be used to perform everything from surgery to custodial maintenance.

Some robots could have their own ability to make decisions, researchers stated.

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Using Marine Life as Biofuels

Oregon State Researchers are studying the use of organisms found deep in the ocean as a possible biofuel for cars.

The researchers already have the expertise to package the energy from the organic material, but the technology hasn't caught up, according to engineers.

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Prosthetic Limbs Controlled by Thoughts

Researchers are developing mechanical components at OSU for prosthetic limbs that respond to nerve impulses sent to it from the body.

“We want to use these (components) to connect to muscles and tissue in the human body,” Lab Director Ravi Balasubramanian said. 

“This combination of human movement and robotics is going to be a very exciting area of work for the next 25 years,” Balasubramanian said.

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Cancer Prevention

Cancer research at OHSU is extensive, and shows now sign of decreasing any time soon.

Nike-founder Phil Knight pledged that he would donate $500 million to the Knight Cancer Institute at OHSU, on the condition that the university and legislature would match his contribution by December 2015. The university has raised more than $400 million to match Knight's challenge, according to media reports.

One current project examines on whether cancer can be prevented by what a patient chooses to eat.

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Cancer Cure

OHSU research is taking on the the disease from every angle it can, administrators said.

One of the areas of study researchers are examining is genetics.  

If successful, doctors may be able to target specifically cells damaged by particularly aggressive cancers.

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Workplace Dynamics

On the subject of interpersonal communication, researchers were focused on the subtleties. 

A study released Dec. 17 with an Oregon State professor as co-author, determined introverts could shape extroverted co-workers' career success based on they tend to evaluate one another.

 
 

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