Crowdfunding Sites Like GoFundMe and YouCaring Raise Money—and Concerns

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‘We were crushed,’ said Todd King Sr., after a neighbor refused to turn over a portion of the $2,700 she had raised on behalf of his family after the death of his son Tyree. Photo: Andrew Spear for The Wall Street Journal

After Todd King Sr.’s 13-year-old son Tyree was killed by a drunken driver last summer, friends, neighbors and strangers rallied to the family’s side, donating several thousand dollars for funeral expenses through a crowdfunding website.

Then Mr. King, who lives in Springfield, Ohio, discovered that a neighbor had kept more than $1,000 of the $2,700 she had raised on the family’s behalf through YouCaring.com. She refused to turn over the remaining funds, so Mr. King filed a report with the county sheriff and ended up in court.

“We were crushed,” said Mr. King. “Whoever has guardianship over the child should be the one that cashes the check.”

Crowdfunding websites, such as YouCaring.com and GoFundMe.com, are for-profit businesses that make it easy for people to raise money for a variety of causes, such as funeral expenses and medical bills. The sites are gaining in popularity, raising $1.9 billion last year through campaigns, with giving expected to grow at a 25% annual clip for the next several years, according to Blackbaud Inc., a technology provider for nonprofits.

But the sites have come under fire for not having enough controls to protect users. “There is no accountability after the fact,” said Ethan Mollick, an assistant professor at the University of Pennsylvania’s Wharton School who studies crowdfunding.

The platforms earn money from fees paid by donors or campaign organizers. For example, GoFundMe, the largest peer-to-peer fundraising site by revenue, levies a 5% platform fee, plus a processing fee of 2.9% plus 30 cents per donation in the U.S. and Canada. On a campaign that raises $110,000 from 760 donors, GoFundMe would collect a platform fee of $5,500; an additional $3,418 would go to WePay, the payment processor.

Some competitors don’t charge a platform fee, but automatically indicate a recommended contribution to cover platform costs when a donation is made.

Executives at GoFundMe, YouCaring and their competitors say the number of fraudulent campaigns is actually low and note that they can’t vet every campaign. GoFundMe says each month it adds 100,000 new campaigns to its site. The campaigns have helped raise $2 billion, including more than $1 billion in the last nine months. YouCaring said it hosted 170,000 campaigns last year that raised $140 million.

“A new campaign is started every 18 seconds on GoFundMe,” said GoFundMe Chief Executive Rob Solomon. “While we are careful to screen as much as humanly possible, there is virtually no way to proactively screen each and every one when they are created.”

To verify the campaigns they host, the sites employ basic fraud screens that use behavioral, financial and social information to identify fraud. The sites also rely on users to help maintain the integrity of the fundraising efforts.

GoFundMe advises users to “only contribute payments to GoFundMe users they personally know and trust.” YouCaring terms of service note it “cannot and does not represent or warrant the truthfulness of any Fundraiser.”

As more complaints land at local and federal law-enforcement agencies, some officials see the need for better laws aimed at online giving to help manage the problem.

Most states have laws that govern the formation and operation of nonprofits and many also regulate charitable solicitations by, for instance, barring fraudulent or deceptive campaigns. But it’s not clear whether those laws cover the online platforms and those using them to raise money.

“The issue we are grappling with is whether there is a law out there that governs this type of transaction and do we have jurisdiction,” Janet Kleinfelter, president of the National Association of State Charity Officials.

Clark County prosecutor D. Andrew Wilson, who brought a case against Mr. King’s neighbor, is urging Ohio officials to specifically address online charitable fraud as part of an update of the state’s criminal code.

YouCaring spokesman Leonard Lee said the five-year-old company is in the process of strengthening and improving its system to ensure that campaign organizers have the beneficiary’s permission, a site requirement. He said the industry could face new regulations if it doesn’t adopt its own set of standards and guidelines.

Mr. King’s neighbor pleaded guilty last year to one count of telecommunications fraud and was sentenced to 60 days in jail and two years of probation. The neighbor has since made full restitution, said her attorney, Stacey Pavlatos.

ENLARGE

‘We were crushed,’ said Todd King, after a neighbor refused to turn over a portion of the funds she had raised on his family’s behalf through YouCaring. A photo of Tyree King as a baby. Photo: Andrew Spear for The Wall Street Journal

GoFundMe’s Mr. Solomon said “the best defense we have against bad actors or any impropriety is our community of users.” The company says that if a campaign displays “suspicious or untrustworthy behavior,” it immediately suspends withdrawals.

Though most appeals on these charitable crowdfunding sites bring in less than $5,000, some prove far more successful. GoFundMe’s largest campaign to date raised more than $2 million for the family of a four-year-old with a terminal disease.

And the industry is attracting new players, talent and funding. Last summer, Accel Partners and Technology Crossover Ventures led a group of investors in purchasing a majority stake in GoFundMe, a deal that valued the nearly six-year-old company at roughly $600 million.

While the sites can provide a platform for con artists to bilk others by misrepresenting an illness, campaigns raising money on behalf of someone else can create a complex web of problems where the avenues for resolution are murky.

In December, Priscilla Williams’s 28-year-old husband died in a car wreck with his mother and a friend near their home outside Fort Worth, Texas.

Ms. Williams discovered there was a campaign set up for the victims’ families, but she didn’t know the person who set it up, so she asked GoFundMe to have the campaign shut down. The site refused “because nothing fraudulent had occurred,” according to a complaint filed by Ms. Williams with the Fort Worth Police Department.

Even after being notified, GoFundMe continued to release funds to the organizer, according to emails reviewed by The Wall Street Journal. The campaign raised $1,061.

GoFundMe said it has been working to resolve the situation. A Fort Worth Police Department spokesman declined to comment because the case is still open.

Efforts to reach the campaign organizer were unsuccessful.

Sheila Robertson, whose son also died in the same wreck, reached out to the organizer, and she said she was able to get a portion of the funds raised in the GoFundMe campaign, or $530, from the family of the campaign organizer in exchange for agreeing not to bring legal action or mention the organizer’s name on social media.

The episode “made a tragic event that was already hard even worse,” she said.

Write to Ruth Simon at ruth.simon@wsj.com