Crowdfunding- The Good, The Bad & The (really) Ugly Part 3

Introduction

In Part 1 I covered all of the good things that we have seen as crowdfunding continuously gathers momentum across the world. The future looks bright indeed!

In Part 2 I wrote of changes within the industry, especially within rewards based crowdfunding – the competition which makes it so much harder for the small guys and the Indiegogo platform now giving preferential treatment to corporates, allowing them “…to pay for special placement on Indiegogo's site, making them more discoverable than other campaigns”. I also explained that although campaign creators are often labelled as scammers when they fail to deliver on their promises, in many cases this is not true at all.

Here in Part 3, we delve into the dark world of extortion, blackmail and a whole host of other not so nice behavior. I’ll cover some real scams where the campaign creator’s intention from the very beginning was to steal people’s money, in some cases, with the crowdfunding platforms help too!
 

Part 3-The (REALLY) UGLY

 

Extortion and Blackmail

Ethan Hunt - Micro Phone

During our very early days of offering crowdfunding campaign marketing services, we were engaged by a Mr. Ethan Hunt who had just launched his Micro Phone campaign on the Indiegogo platform. Ethan and I shared a few phone calls as his campaign began to gather momentum and I specifically remember being on a call with him one day, while the money was rolling in, and each refresh of his campaign page showed more and more backers claiming the rewards on offer. Times were good and there was an element of excitement in his voice (and mine too). Who wouldn’t be excited to see such fantastic traction?

Around 4 weeks later, with almost $50,000 raised, Ethan reached out to me to say he’d been contacted by a guy named Michael Gabrill who claimed that he had some negative information about Ethan and that if he did not pay him $10,000 he would release this information to the public through various media channels. Ethan forwarded me the email communications so I could see for myself.

Low and behold, there it was in black and white.

My advice to Ethan at the time was to just ignore this guy, as I was sure that Gabrill was just a typical opportunist money grabber and was probably seeking attention too. Ethan wrote back to him, refusing to pay a single cent but what happened next surprised us both - Garbrill began contacting various media including Pando and even went so far as to create a webpage slandering Ethan and his Micro Phone project.

The story continued and in Ethan’s own words at the time:

“Did Michael Gabrill attempt to extort money from us? Yes, he did, this is fact he has admitted to doing it here and on one of the many webpages he has set up in an attempt to cover his actions and his motives, claiming it was a test to see if we would incriminate ourselves. Incriminate us for what? Running a successful and legitimate campaign? Or refusing to pay him money not to do what he has done, something he threaten(ed) to do if we did not pay him.

What did Michael Gabrill do exactly? Well, he approached me the day after our campaign reached 100% funding which means in laymans terms when our campaign had received enough contributions for our campaign to be successful and for us to receive payment of the funds at the end of the campaign.

It took more than 30 days to reach our goal and our campaign to be fully funded. During this time, Michael Gabrill sat back and waited until there was enough motivation for us as campaign owners to if he could build enough fear of loss by the thought of him getting our campaign closed down to pay him money for his silence.

Why if Michael Gabrill if he really believed the campaign was fraudulent did he not immediately report it? Simple up until the campaign is 100% there would be no motivation for campaign owners to pay him a penny. This was never about him believing there was an issue with the campaign it was about his motivation to gain financially from a successful campaign. Something, we are sure he has done many times before.

Why do we think he has done this before? He waited until we were 100% funded, he claimed he could shut us down, he claimed that we had no intention of delivering anything to contributors and were going to steal their money and he wanted his cut or he was going to have us arrested for fraud.

Michael Gabrill’s only motivation was money, he sent me a link to his first webpage and told me if we paid him it would not go up. That webpage included photos of myself, details Michael Gabrill had obtained from my eBay account (which could only have been accessed by an eBay employee) and he claimed I was a creep or in Australian terms a sex offender. When I refused to pay him and reported him, he had the webpage active in less than 10 minutes. Only an extortionist would have a pre built webpage ready to go to force his victims into paying him to remove it.

Is our campaign is legitimate? Yes it is, we have registered businesses in Hong Kong and Australia, neither Mike or I have ever been investigated for fraud and we have both been successfully running business in Australia, Hong Kong and China for more than 25 years.”

To end the story, Ethan initiated legal action and managed to have all the slandering webpages created by Gabrill removed and received a public apology from the man himself too. In turn, Indiegogo went on to ban Gabrill completely from their platform.

This turned into a very time consuming and costly endeavor for Ethan but unfortunately, there are many Gabrills lurking in the shadows and waiting to pounce.

 

Bob Rohner – RG Energy

Bob signed up with us a few months after Ethan but his story is a different one in that his crowdfunding campaign didn’t really do too well at all. We tried our best but the ‘crowd’ seemed to think that what Bob was attempting to do was nigh impossible.

However, during the third week of his campaign. Bob received an email from someone claiming to be the owner of RG Energy, a company based in Ohio. Bob’s business was registered in Iowa. They emailed Bob stating that because they were using their RG Energy’s company name, he would have to pay $10,000 (yes, coincidently the same amount as Ethan was asked for) in license or royalty fees. What??

After a little research, it turned out that this goon had registered a company by the same name in Ohio AFTER Bob had launched his crowdfunding campaign thinking he could get money out of him by playing this little game. This led Bob to get his legal team involved and the problem swiftly went away.

 

The Scammers – Very few real ones but they are out there!

Intentional scams are very rare. During my time in the industry I have seen no more than 3 or 4 which were clearly scams from the very beginning.
Many labelled as scams today are situations whereby the people involved set out with good intentions, only to find out that what they are attempting to do is either impossible or far costlier than they expected. Crowdfunding campaign first, homework afterwards rarely works.
 

Julien (Courteville) Buschor – Launching Multiple campaigns helped him steal almost $400,000

During July 2015, a campaign on the Indiegogo platform called Smart Tracker 2 (ST2) caught my attention for the simple reason that it had raised over $20,000 within the first 24 hours. Normally, campaigns that gain this kind of traction so quickly have done their homework and are fully prepared with social media assets before launch. In most cases, they have a substantial number of social media followers. However, when I looked at the Smart Tracker accounts I saw that they barely had any followers at all. In fact, at the time, their Facebook page showed only 149 ‘likes’ and their Twitter account a measly 19 followers. Maybe they’d done a fantastic job of building a targeted email database before launch, was a thought at the time. My suspicions were aroused though which lead me to delve a little deeper.

I returned to the ST2 campaign page and began to scroll through their backer list. As I scrolled down to the very first backer, and began searching through the list of names, low and behold, I began to see some of the same names appear as backer’s multiple times and eventually realized that 7 or more user accounts had contributed to the campaign many times over – a clear sign of self-funding taking place. This raised alarm bells and prompted further investigation.

What I discovered was a first for me. A look at the user account profile that created this this ST2 campaign showed that this was the 4th campaign launched since the beginning of the year by the very same person – Julien Scherer (whose real name turned out to be Julien Buschor) and now it was only July? Ding..ding..ding. The alarm bells grew louder!

Upon further investigation I discovered that Mr Buschor first launched a campaign called Last Crime in January 2015 raising over $7,000 and claiming:

 “Last Crime was made with cutting edge technology that can easily analyze data, provide facial recognition, perform phone and email scanning and much more”

A month later yet another campaign had launched by the name of Innovative Swiss Teeth Whitening Machine raising over $ 60,000 and with a tagline of “Swiss White Teeth, the most advanced swiss teeth whitening light with color screen and USB interface

A few short weeks later the Smart Tracker campaign launched and managed to raise just over $18,000. And finally, the ST2 campaign as initially mentioned above.

The answer to the question - How had the Smart Tracker 2 campaign managed to raise over $20,000 so quickly? -  was now fairly obvious as it was clear that Mr Buschor had rolled funds from his other campaigns into this new one.

Armed with this information, we reached out to Mr Buschor using a private email address and began a lengthy exchange of emails over the following few days. Initially he was panicked and changed user names on the campaigns listed above and sometimes became aggressive in his defense, but he did begin to accept that we knew his game. We threatened to report his campaign to Indiegogo and eventually, he did confirm that he had self-funded the ST2 campaign and his defense was made with a claim of “I’ve done nothing wrong as it’s legal so Indiegogo won’t cancel our campaign”

Mr Buschor self-funded his ST2 campaign to the tune of over $20,000, using money collected from previous campaigns to create a sense of popularity in the eyes of the public. No doubt in my mind that we were seeing a real con man in action!

As my marketing agency, Smart Crowdfunding is listed as a ‘Partner’ on Indiegogo itself, I reached out directly to their Trust and Safety division armed with all of the evidence needed to show that Mr Buschor had been scamming the public. I was certain they would listen, or at least reach out to me for more details. Nope. I received a canned email response saying very little except that they would investigate the matter. Did I hear back from them after this? Nope.

Of even more concern was that the ST2 campaign continued and on July 12th was promoted through the Indiegogo newsletter to a huge database of millions of people. Funding continued to ramp up and eventually the campaign raised more than $300,000.

Was it really a scam you may ask? Absolutely! The comments page on the ST2 campaign tells the whole shameful story!

As for Mr Buschor, he was resident in Switzerland and made local news for all of the wrong reasons as seen HERE

 

BioRing- The Amazing Ring That Made $460,000 Disappear

Now, this one had scam written all over it from the very beginning. However, even some notable Crowdfunding Marketing agencies were taken for a ride in the process too.

During mid-January 2016, we (Smart Crowdfunding) received an email inquiry from a Daniel Johnson asking about our services. After a few back and forth emails with our team, this lead to a Skype call booked for the 20th January. For some reason, they had to reschedule and we rebooked a time for 9am on 27th January, this time with a James Lee.

The call went ahead as planned, and James told me all about BioRing and that they were going to launch a crowdfunding campaign to raise the funds to manufacture the product and get it out there into the market. I explained our campaign development and marketing process, and the need to build an audience prior to launching. James asked if we would work on a percentage only basis to which I replied “No” and then went on to explain that without any validation testing we do not know if his product is a good fit for crowdfunding. Upon concluding the call I did say that I would email through our fee structure and the call ended.

My thoughts at the time were that what they were trying to do was nearly impossible, so a few days later I emailed again stating that after careful consideration I could not help them as I felt their product was impossible to develop.

We did not hear from either Daniel or James again.

The BioRing campaign eventually launched in June 2016 and did rack up over $700,000 in funding.  

Fortunately, at least some of the backers were refunded, as Indiegogo did not release any of the InDemand money to the campaign owners. The total amount ‘stolen’ is now showing at $424,664 as of today’s date.

Now, that’s a lot of money and has, in effect, added to a community of backers claiming to never back another Indiegogo campaign again as can be clearly seen on the comments section of the BioRing campaign page. There are many other campaigns with such negative comments.

These disgruntled backers have a right to be pissed and there are hundreds of thousands of them who have supported other campaigns that are disgusted with the treatment they receive from Indiegogo themselves.

You can read more about this scam in this excellent investigative article from Sara Morrison here

The ironic thing with BioRing is that the marketing agencies involved - Funded Today (FT), Herscu and Goldsilver (H&G) and Command Partners (CP) – were up in arms when they didn't get paid after the campaign concluded, having raised over $700,000. It surprises me that none of them thought that this campaign was nothing but a scam from the very beginning, considering FT were taking a 25% cut of funds raised, H&G a 10% cut and I assume CP a minimum 10%....so, a minimum of 45% off the top! Add to this the 5% Indiegogo platform fee and payment processing fees of around 3.5% meaning that BioRing were giving away more than 50% of the backer’s money!

A screenshot of the BioRing campaign team captured prior to the campaign been flagged as fraudulent. Since then all associated team members removed themselves from the campaign, most likely out of embarrassment.

 

The Prostitute

Today we have numerous crowdfunding platforms offering rewards and donation based crowdfunding, but two stand out as so-called leaders – Kickstarter and Indiegogo.

Indiegogo

I have worked with the Indiegogo platform since mid-2012, and over the years I have seen a lot of improvements to their website, and more recently, in backer security too. During the earlier days, anyone contributing to a crowdfunding campaign on Indiegogo had no way to manually refund their contribution from within their own Indiegogo user account.  If they changed their mind they had to jump through a series of hoops and in most cases, didn’t get anywhere. So, once you pledged, that was it, you were more or less locked in. Only during 2016 did Indiegogo finally add an option whereby backers could actually process a refund directly from their own user account subject to the Refund Policy. What took them so long to integrate this function baffles many.

Many who know me know that I refer to Indiegogo as the prostitute of the crowdfunding industry. They initially claimed to be a platform aimed at democratizing funding for the small guy (as highlighted in Part 2)  but this turned into nothing more than a publicity stunt. In reality, their business model today is completely focused around turning their platform into a typical online store. No longer is it a case of, come up with a concept or prototype and then bring your idea to the crowd using their platform, but instead, it is now a place for some to sell existing products using Indiegogo as just another sales channel. Add to this their “Enterprise Crowdfunding” model where they give corporates the chance to pay for special placement on the platform (with no such opportunity for the small guys), one soon realizes that their shift in focus is to allow the use of their platform for any online ecommerce purpose.

Indiegogo’s focus from the very beginning has been on the project creators with little care in the world for those backers who pay the money. Incorrectly identifying who the customer really is has been the downfall of many a business in the past, and Indiegogo has alienated millions of them. They treat backers as second class citizens with shoddy customer service, and turn a deaf ear to any mention of fraudulent campaigns even when marketing agencies provide clear evidence of fraud.

Crowdfunding marketing agencies have not escaped Indiegogo’s nonsensical behavior either, as witnessed by the blanket statement issued to campaign creators via email a short time ago which told them that they should not hire crowdfunding consultants; and that Indiegogo would provide them with all the support they would need (some kind of joke that is, as anyone who has experienced their customer service will testify). They took no pains to distinguish between professional crowdfunding consultants you might hire before you launch, or marketing scammers who spam projects after launch. Yes, even the reputable agencies who have supported Indiegogo from day one, and sent millions of backers (and dollars) to the Indiegogo platform were brushed aside in this unthinkable statement.
 

Only time will tell how long this damaging, dark cloud that hangs over the entire crowdfunding industry will last. One must only look at the numerous negative comments on Indiegogo campaigns to confirm their lack of concern for those who part with their hard-earned cash. Statements such as “I will never back another crowdfunding campaign again” and “I pledge to never spend or support this scam breeding web site ever again” abound, and the backer community is now truly infected.

Does this really matter? Yes, it does, as it spreads negativity to all corners of the crowdfunding world, equity crowdfunding included!

Without backers/investors the whole crowdfunding industry will collapse and I see these exact same problems within the equity crowdfunding space – portals/platforms focused solely on “issuers’ and their creations with little focus on those who give the money. Yes, compliance is top priority (or should be) but a business focused on the wrong customer shall be short lived for sure.

I believe that the days of Indiegogo riding the wave are long gone. Once you make such glaring errors as incorrectly identifying who your customer really is, you are living on borrowed time. And although not privy to such information, I suspect we are seeing declining revenues too. The many fires that they have started will continue to rage while their extinguishers eventually run dry. Word on the street has it that there is already an FTC investigation going on as I write.

Kickstarter

The good boy of crowdfunding? Overall yes but they too have created much confusion during the early days. Kickstarter have always self-regulated their platform with an approval process of sorts. However, until recently, many campaign creators were rejected but not told why, with the exception that their campaign didn’t comply with Kickstarter’s terms of use. Not much help when you don’t know what is wrong! This is now a thing of the past as campaigns today are rejected with an explanation as to why, allowing the project creator to rectify any issues and then re-submit for approval.

Do I feel Kickstarter will suffer the same fate as Indiegogo? Nope! They took their position within crowdfunding seriously and self-regulated their platform for the benefit of all. Kickstarter have also been true to their word from the very beginning with little change to the original purpose of the platform.

Conclusion

As we move into mainstream equity crowdfunding, with the launch of REG D, REG A+ and REG CF, I feel there are some important lessons to learn from the mistakes of others. Namely, the customer is still king and even more so when they are the ones feeding your very existence. Ignoring their voices is a common sight, even among the new breed of equity portals and platforms. Campaign creators and issuers will always be around in huge numbers attempting to pitch their wares. However, the backers and investors won’t unless you treat them with fairness and listen to their concerns.

While others make critical mistakes, and in some cases crumble into oblivion, our own upcoming platforms and portals will always look out for the real customers – the project creators and issuers who bring their ideas to us, but more importantly, the investors who bring the real money to the table. Having had my finger on the pulse for a very long time, I see what many others, driven by greed, are too blind to see!

A final tip to anyone utilizing crowdfunding in order to raise capital – best you never forget that Marketing means business. Ignore this at your own peril!

About The Author

Shane Liddell is the CEO and chief Crowdfundologist at Smart Crowdfunding LLC - The Crowdfunding Marketing Agency and is also CEO of Spectikon Corporation - The Crowdfunding Company. He became active within the crowdfunding industry early in 2012, seizing the opportunity to offer help to crowdfunders from all corners of the world. He has delivered successful campaigns for entrepreneurs, startups, corporations and filmmakers and has assisted over 500 crowdfunders with campaign development, consulting, marketing and promotion services, some of whom have raised millions of dollars in the process. Shane has attended numerous equity crowdfunding industry events, including the SEC Small Business Forum and the CfPA Summit in Washington DC. He holds the position of Executive Director of the Crowdfunding Professional Association (CfPA).

Legal Disclaimer:

These materials are my personal opinions and for informational purposes and do not represent the opinions of any other business or organization.