Criminal Liability For Fraudulent Crowd-Sourcing Campaigns
🔷 1. Concept Overview: Fraudulent Crowdsourcing Campaigns
Fraudulent crowdsourcing campaigns occur when individuals or organizations raise funds from the public through online platforms (like Kickstarter, GoFundMe, Ketto) by misrepresentation, false promises, or deceptive claims.
Examples:
Claiming a medical fundraiser is for a patient but diverting funds for personal use.
Promising to deliver a product or service that never existed.
Soliciting donations under false pretexts (disasters, charity, social causes).
Criminal Liability arises when:
Intent to deceive the public is proven.
Funds are misappropriated or misused.
Digital or online transactions are used to commit fraud.
🔷 2. Legal Framework in India
| Law | Relevant Sections | Explanation |
|---|---|---|
| Indian Penal Code, 1860 | Section 420, 406, 403, 468, 471 | Section 420 – cheating; 406 – criminal breach of trust; 468 – forgery with intent to cheat |
| Information Technology Act, 2000 | Sections 66C, 66D | Online fraud, identity theft, impersonation |
| Prevention of Money Laundering Act, 2002 (PMLA) | Section 3–4 | Laundering illegally obtained funds |
| Foreign Contribution Regulation Act, 2010 (FCRA) | Sections 3, 11 | Receiving foreign donations without authorization |
| Consumer Protection Act, 2019 | Section 2(47), 51 | Misrepresentation and unfair trade practice in online campaigns |
Key Principle:
“Any fraudulent representation in the collection, handling, or promise of delivering funds or goods in a crowdsourcing campaign attracts criminal liability, even if conducted online.”
🧾 CASE LAW DISCUSSIONS
⚖️ Case 1: Ketto Campaign Misuse Case (Delhi, 2019)
Facts:
An individual created a campaign claiming funds were needed for COVID-19 treatment.
Investigation revealed the patient had no medical expenses, and funds were transferred to the organizer’s personal account.
Charges:
Section 420 IPC (cheating)
Section 406 IPC (criminal breach of trust)
Section 66D IT Act (impersonation/fraud using digital channels)
Judgment:
Delhi Court held the organizer criminally liable.
Conviction emphasized intentional deception and diversion of public funds.
Principle:
“Fraudulent crowdfunding campaigns with misappropriated funds constitute criminal breach of trust and cheating, regardless of the medium being online.”
⚖️ Case 2: People v. GofundMe Scam (U.S. Federal Court, 2019)
Facts:
A couple set up a campaign to help a homeless veteran, raising over $400,000.
Investigation revealed the story was fabricated; funds were used for luxury expenses.
Charges:
Wire fraud
Conspiracy
Money laundering
Judgment:
Both accused convicted; sentenced to prison and ordered to repay funds.
Relevance to India:
Demonstrates that misrepresentation + online fundraising = criminal liability, emphasizing cross-border awareness for digital campaigns.
⚖️ Case 3: State of Maharashtra v. Fundraiser for NGO (2018)
Facts:
NGO collected funds online for tribal education, claiming tax-exempt status and FCRA registration.
Investigation showed FCRA registration was fake, and funds were partly misused.
Charges:
Section 420 IPC (cheating)
Sections 406, 409 IPC (criminal breach of trust)
FCRA violation
Judgment:
Court convicted NGO trustees; fines and imprisonment imposed.
Highlighted personal liability of trustees for deceptive fundraising.
⚖️ Case 4: Humsafar Charity Fund Fraud Case (2017, Delhi)
Facts:
Individuals ran an online campaign claiming disaster relief funds.
Funds were routed through shell accounts; victims reported missing donations.
Charges:
Sections 420, 406 IPC
Sections 66C, 66D IT Act (digital fraud)
Judgment:
Conviction for misrepresentation and misuse of digital channels.
Court stressed due diligence for online campaign platforms and that organizers cannot escape liability due to digital medium.
⚖️ Case 5: Patanjali Crowdfunding Allegation (U.P., 2020)
Facts:
Allegations surfaced that online donation campaigns for herbal product research were misleading; promises of “donor returns” were not fulfilled.
Charges:
Section 420 IPC
Section 406 IPC
Consumer Protection Act – unfair trade practices
Outcome:
Partial fines imposed, campaigns shut down, corrective disclosures required.
No jail term, but corporate accountability reinforced.
Principle:
“Even corporate-led online campaigns can attract criminal liability if funds are misused or misrepresented.”
🧩 Summary of Legal Principles
| Offense Type | Relevant Law | Penalty |
|---|---|---|
| Fraudulent fundraising | Section 420 IPC | Imprisonment up to 7 years + fine |
| Misuse of collected funds | Section 406 IPC | Up to 3 years imprisonment + fine |
| Digital impersonation/fraud | Sections 66C, 66D IT Act | Up to 3 years imprisonment + fine |
| Misrepresentation of NGO status | FCRA, Sections 3–11 | Imprisonment + fine, FCRA debarment |
| Consumer deception | CPA 2019, Sections 2(47), 51 | Compensation, penalties |
🧠 Key Takeaways
Intentional deception is central – mere failure to deliver is not always criminal.
Online platforms are not automatically liable, but they must exercise due diligence.
Corporate and individual fundraisers are personally liable for fraudulent misrepresentation.
Digital forensics is key in tracking misappropriated funds.
Fraudulent crowdfunding campaigns can also trigger money laundering charges if funds are routed across multiple accounts.
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