Backers Beware: Characteristics and Detection of Fraudulent Crowdfunding Campaigns.

ABSTRACT

Crowdfunding has seen an enormous rise, becoming a new alternative funding source for emerging companies or new startups in recent years. As crowdfunding prevails, it is also under substantial risk of the occurrence of fraud. Though a growing number of articles indicate that crowdfunding scams are a new imminent threat to investors, little is known about them primarily due to the lack of measurement data collected from real scam cases. This paper fills the gap by collecting, labeling, and analyzing publicly available data of a hundred fraudulent campaigns on a crowdfunding platform. In order to find and understand distinguishing characteristics of crowdfunding scams, we propose to use a broad range of traits including project-based traits, project creator-based ones, and content-based ones such as linguistic cues and Named Entity Recognition features, etc. We then propose to use the feature selection method called Forward Stepwise Logistic Regression, through which 17 key discriminating features (including six original and hitherto unused ones) of scam campaigns are discovered. Based on the selected 17 key features, we present and discuss our findings and insights on distinguishing characteristics of crowdfunding scams, and build our scam detection model with 87.3% accuracy. We also explore the feasibility of early scam detection, building a model with 70.2% of classification accuracy right at the time of project launch. We discuss what features from which sections are more helpful for early scam detection on day 0 and thereafter.