Monique Hayes, of Goldstein & McClintock, Miami, and Evelyn Suero of Suero Law, Miami. Courtesy photo.

As with any shiny new internet phenomenon, law and policy hasn't quite caught up to access monetary donations sent across states and nations at the touch of a button.

That became clear when lawyers stepped in to unravel what happened to the $400,000 raised by New Jersey couple Kate McClure and Mark D'Amico via a GoFundMe page for homeless veteran Johnny Bobbitt, who spent his last $20 and walked miles to get gas for McClure when she was stranded.

What started as a heartwarming story of a grateful woman pooling public generosity for a  stranger who was kind even though he had so little soon turned into a cautionary tale. Not long after, the lawyers stepped in.

A legal battle ensued after the couple was pictured enjoying lavish trips and shopping sprees, while Bobbitt claimed he hadn't received the money.

 

'Not Much Oversight'

Crowdsourcing platforms arose to make it easier for a single person to raise money. But according to Miami finance lawyers Evelyn I. Suero and Monique D. Hayes, they also raised new problems.

“If you make it easy to collect money, you also make it really easy for fraud to occur,” said Suero, who specializes in business transactions and helps nonprofits start up and obtain licenses to solicit donations.

According to Suero, many people assume crowdsourcing is more regulated than it is.

“There's not much oversight,” she said. “You can pretty much solicit without a license if you're doing it for one person, either yourself or one named individual.”

Another nuance: Nonprofit organizations need a license to raise funds, whereas individuals, like McClure and D'Amico, do not, leaving up to donors to  navigate the legitimacy of online fundraisers.

And sometimes they get it wrong.

In May, for instance, police uncovered a pair of fundraisers who'd collected more than $3,000 through a heart-wrenching fiction. They arrested that New York couple for allegedly using a GoFundMe page to collect donations from strangers under the guise that their 10-year-old son had cancer. And in 2015, a man allegedly crowdsourced money for his friend's sick baby, then kept it for himself.

“If we're going to have websites that appeal to the good in people's hearts, we have to protect them as well,” Suero said. “Now we have Hurricane Florence, we're going to see a bunch of GoFundMe pages pop up for that, and I don't know.”

Though many crowdsourcing sites ”are trying to help” by encouraging people to follow the law, Suero concedes she sometimes doubts the validity of online campaigns.

“There's a lot of things I'd like to donate but I don't know if it's legitimate. I don't know if there are enough protections available for me to feel confident,” she said. “If something takes place I'd rather just give to a big organization like the Red Cross. And even then, people have argued here and there about whether the money goes where's it's supposed to go. I don't know.”

 

Litigation Costs

Hayes, who's practiced business and bankruptcy law for 14 years, said the issue is that crowdsourcing platforms rely on public faith in a “promise” about what will be done with the funds.

“The reason why these types of platforms are susceptible to fraud is because they're really based on trust,” she said. “Once a complaint is filed or something goes wrong, there's nothing on the front end that is going to vet and sort through whether a process is legitimate or whether there's a particular criteria for the donation to be made.”

Another concern: Individual crowdfunding is “ripe for fraud,” according to Hayes, because most contributions are made in small amounts.

“If you donated individually $25, then it would cost you $250 just to file a lawsuit, just to see. Imagine if you have to hire a lawyer, that may be $5,000,” Hayes said. “If the lawyer is going to be involved in a case for a long time, it can go up until the multiples of thousands of dollars.”

The incentive is low for people to seek legal remedies when funds are collectively misused,  according to Hayes.

For that reason, authority to prosecute lies with the Federal Trade Commission and the state attorney general.

 

Shouldering the Risk

Photo: Twinsterphoto/Shutterstock.com

The Terms and conditions of GoFundMe point out that “all donations are at your own risk.”

“They pretty much put the burden on the donors and the organizers,” Suero said. “But it would be good if websites like GoFundMe would at least mention it and say, 'You may have to deposit this in a trust account because you may be subject to criminal penalties.'”

The GoFundMe guarantee states, “if funds aren't delivered to the right person, we will donate the missing amount.” Provisions like these are set up to protect people like Bobbitt from fraud, but according to Suero, more oversight and enforcement is needed.

“It says on the GoFundMe website that if you're raising funds for an organization and you're not affiliated with them, you should just withdraw it and give the funds to the organization. I mean, really? How easy is that for someone to now raise money and commit fraud? I looked at it and I was just shocked because it's contradictory to their own terms,” Suero said.

In Florida, the Solicitation of Contributions Act dictates that donations must be sent to a trust or depository account for the named beneficiary, as opposed to simply being withdrawn by the individual who raised the funds. But in New Jersey, that's not the case.

“This would have helped the homeless gentleman, because the funds would have been deposited in a trust account, and the court would be supervising and making sure that the funds go to the purpose for which the funds were raised,” Suero said.

But the downside to that, though, according to Hayes, is that each new regulation could delay the process of getting resources to the people and charities who need them.

“There's a balance that needs to be struck between the federal and state regulators and the host sites in order to lessen the likelihood of consumer fraud,” Hayes said.

According to Suero, educating donors and organizers about the law would mean “people can donate with confidence, knowing there's some oversight. Because right now, you ask anybody and they say, 'I've heard the news stories. That's not going to go to the person,' and that's sad.”

 

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