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  • Writer's pictureJerry Ipsen, CFE, MBA

Risks Associated with Crowdfunding on FaceBook

Crowdfunding is known for its advantages such as being a fast way to raise money, typically no upfront fees and for the most part, a great way to gain media attention. Nevertheless, Crowdfunding still has issues. For example, Crowdfunding on Facebook may at first seem attractive, but it does come with some risks that should be considered before launching such a campaign. Jonathan Tavares writing for the Premier Law Group points out just a few of the potential risks associated with crowdfunding on Facebook:

Scams and fraud: Unfortunately, there are people who use crowdfunding platforms to scam others out of money. Crowdfunding on Facebook is no exception. Fraudulent campaigns can be created by individuals posing as legitimate causes or organizations, and donors may not always have the means to verify the authenticity of the campaign. It's important to be cautious and do research before donating to any campaign on Facebook.

Payment processing issues: Crowdfunding campaigns on Facebook often rely on third-party payment processors to handle transactions. If the payment processing system fails or experiences issues, it can lead to delays in receiving funds or even loss of funds altogether. It's important to carefully review the terms and conditions of any payment processor being used and have contingency plans in place in case issues arise.

Legal issues: Crowdfunding campaigns may unintentionally violate laws or regulations, such as tax laws or securities laws. It's important to consult with a legal professional before launching a crowdfunding campaign on Facebook to ensure that all legal requirements are met.

Reputation damage: If a crowdfunding campaign is not successful, it can damage the reputation of the cause or organization being supported. Additionally, if a campaign is found to be fraudulent or misleading, it can damage the reputation of the campaign creator and result in negative publicity.

Jerry of Ipsen Due Diligence works with investors and lawyers providing background checks, due diligence, fraud examination and litigation support when suspicious actions by general partners warrant serious investigation.

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