Lawmakers take closer look at potential crowdfunding scams

Lax oversight could lead to crowdfunding frau... 02:59

Lawmakers are taking a closer look at potential fraud by some people who organize crowdfunding campaigns.

Websites like GoFundMe and YouCaring are often used to solicit charitable donations, sometimes after a tragedy or hardship, but experts say these sites are largely unregulated and the people who should get the money don't always wind up with the funds they deserve, reports CBS News correspondent Don Dahler.

Among them is Tyree King, who was killed by a drunk driver last summer near his home in Springfield, Ohio. The next day, the 13-year-old's parents said they were consoled by a neighbor they had never met before. The woman offered to set up a YouCaring crowdfunding website to raise money for Tyree's funeral expenses.

"So we definitely thought she was a good neighbor," said Tyree's mother. But that neighbor, Tina Harper, pleaded guilty to telecommunications fraud after Tyree's parents accused her of pocketing more than $1,000 of the nearly $3,000 raised.

"It was sickening because for her to play on a family and use their kid for that reason, you know... it's crazy," said Tyree's mother.

YouCaring's Daniel Saper insists incidents of fraud are rare.

"Frankly, it's embarrassing," Saper said. "We're launching hundreds of thousands of fundraisers a year, and the vast, vast majority of people who are coming to us to use the site are good-natured people who have real needs, here and now."

Sites like YouCaring and GoFundMe are increasingly popular ways to raise money for people who need help with everything from medical bills to adoption fees, and even college tuition. Crowdfunding sites raised an estimated $2 billion in 2015, profiting themselves usually through fees or percentages of donations, but this multi-billion-dollar industry is largely unregulated.

Yancey Strickler, Kickstarter chief executive... 04:43

Tyree's father complained to Ohio Sen. Sherrod Brown, who has taken his cause to the Federal Trade Commission. In a statement to CBS News, Senator Brown said: "Families should never have to face seeing their deceased loved ones connected to fundraising scams. I urge the FTC to examine this problem to ensure that grieving families are protected."

University of Pennsylvania Professor Ethan Mollick, who studies crowdfunding studies, said it's usually safe and legitimate.

"It's only when people are soliciting money and you don't know who they are that it starts to get suspicious and more difficult to enforce," Mollick said.

GoFundMe also issued a statement to CBS News, insisting that fraud is something that happens less than one-tenth of one percent of the time on its platform. It says any campaign that displays suspicious or untrustworthy behavior is removed immediately.