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State Officials Warn Of Internet Funding Scams

The Secretary of State’s office is warning people about organizations that try to raise money for their businesses online.

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Photo: Kai Hendry (Flickr)

While many internet startups may be legitimate, state officials say new laws make such ventures ripe for scammers.

A new law Congress passed allows people to sell shares in their businesses on the web beginning next year. The state’s securities division says making sure online investments are legitimate is key to the success of new startups.

More entrepreneurs have been turning to the web in the past few years to find investors. Colin Cudmore is one of those people. He invented what’s called a garden tower—a four foot plant pot that’s designed to recycle nutrients while composting kitchen scraps. Cudmore says he put his idea on a fundraising site called Kickstarter because he needs more money to start a full production line.

“I stumbled upon Kickstarter a couple years ago and I liked it because it’s a way to avoid using banks,” Cudmore says. “We read the paper every day we see the situations with the banks it’s and it’s very difficult to get a loan these days and Kickstarter is a situation where creative ideas can get publicly funded.”

But as online investing becomes more popular, some entrepreneurs are going even further. They’re selling securities, or shares, in their business online, promising investors a part of their profits. That’s where it can get tricky, says Indiana Securities Commissioner Chris Naylor.

“The information about the company and about the investment opportunity will really be limited to the information provided by the startups,” Naylor says. “So that won’t really be a problem for legitimate business owners, but fraudsters could see that as an opportunity to steal money.”

But Naylor says companies use the new outlet properly, people could actually become more comfortable investing online, whether they’re seeking a return on their investment or just donating money to local businessman.

Gretchen Frazee

Gretchen Frazee is a reporter/producer for WFIU and WTIU news. Prior to her current role, Frazee worked as the associate online content coordinator for WFIU/WTIU. She graduated from the University of Missouri-Columbia where she studied multimedia journalism and anthropology. You can follow her on Twitter @gretchenfrazee.

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  • http://profile.yahoo.com/T33K7AQNEXTAVGHZO2GNDSITUQ Gopal Das

    I think everybody should check out the Scam Detector app. I believe they’re online as well.

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