Crowdfunding or crowdfrauding?


By Leslie Parker, CFE, CPA
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Fraud Spotlight: Analyses of lesser-known frauds

Red Ferrari. Designer clothes. Steve Tan appeared to be living the American Dream. In less than two months in the summer of 2013, Tan had raised more than $1.5 million in a crowdfunding campaign on the popular website, Indiegogo, to produce a new smartwatch. However, this apparent overnight success ended in a debacle when more than 11,000 investors lost thousands of dollars.

According to PCWorld (Kreyos smartwatch: We're not a scam, just a trainwreck, by Jared Newman), Tan's Kreyos Meteor smartwatch was supposed to be waterproof with voice and gesture control, and a seven-day battery. He said it would monitor the wearer's heart rate and sleep cycles and would seamlessly connect to mobile devices.

However, a year after the crowdfunding campaign, according to the PCWorld article, many investors hadn't received their watches and those who did found numerous problems. Then Tan, in a post on the Medium site, The Rise and Fall of Kreyos, claimed his manufacturing partner perpetrated an "intricate conspiracy" against Kreyos and said it had pocketed close to $1 million of the raised funds. He said the company now didn't have any remaining money for repairs or refunds. But investors saw photos of Tan on social media climbing into that Ferrari and posing with filled designer shopping bags. (Tan claims a friend owned that Ferrari and the shopping bags belonged to his friends' wives.) Naïve incompetence? Or crowdfunding becomes crowdfrauding?

 
 


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By Thomas_46
Leslie ~ nice article on a topic that not many people really know many facts about. I suspect that misuse of crowdfunding opportunities will almost certainly provide additional future challenges for some of us as CFEs.
 
By Scott_McKeen
Leslie, great article on an often overlooked topic. I expect that we'll see continued growth in crowdfunding- along with growing fraudulent behavior unfortunately.