In this brave new financial world of peer-to-peer (P2P) lending, crowdfunding and crowdgiving, some worryingly familiar words and phrases are beginning to re-appear, such as: Bears and Bulls, Greed and Fear, Boom and Bust, and even “Pinocchio” mortgages (referring to self-certified loans).

The other day I received an invitation to invest in a commercial property development by a crowdfunding platform, which promised a well-above-average ‘guaranteed’ return on each investment over a year. Successful investors have built their wealth on the simple premise that if they don’t understand a business they won’t invest in it, particularly if the return seems too good to be true (which it probably is). A recent press report exposed a crowdfunding platform that — having raised over £150,000 from over 100 small investors — had been declared insolvent, leaving the investors completely exposed to their respective losses.

Even those Good Samaritans who want to raise money on a crowdfunding platform for benevolent causes have found themselves targeted by fraudsters who have demanded the return of funds that had been “donated in error” with the consequence that the fundraisers had to pay the fees deducted by the charity platform before it has even started.

The UK charity sector as a whole is in need of urgent review: 323 employees at the Charity Commission keep a watch over a sector worth an annual income £70 billion generated by 165,000 charities of which over 65,000 (according to the regulator’s own figures) declare annual income of no more than £10,000.

Those who donate to charitable causes in the UK are a generous lot and often give little or no thought to how much of their donation actually makes it to the intended recipients, after salaries, administration expenses, fact-finding trips abroad and so on have. As the more conventional types of fundraising become digitised, the potential rewards for the fraudsters are rising exponentially.

So, if you are tempted to invest in, or donate to, a crowdfunding ‘opportunity’, or charity or any other unknown recipient, make sure that you read their terms and conditions carefully, and carry out some basic due diligence first.

Caveat emptor is one of the first legal principles taught and it is more relevant today than it has ever been.

Tony Houghton