MPhone-07Last week I received an anonymous tip about a potential scam on Indiegogo. The device in question, “Micro-Phone,” purports to be a credit card-sized cellular phone that contains a new “locator” technology: “Locating your child, partner, or best friend, anytime, anywhere is now a cinch,” brags the text at the top of the page, “thanks to Micro-Phone – a sleek, discrete and affordable GSM mobile phone.” The campaign has been extended 30 more days, but is close to tripling its goal of $50,000. Since I recently investigated another crowdfunding scam, I was instantly intrigued.

The tipster linked to a few Chinese cell phones that looked similar to Micro-Phone and concluded that Ethan Hunt, Micro-Phone’s CEO, is planning a bait and switch, to trick people into investing in a device that is really just a cheap Chinese phone. Hunt, who unbelievably shares the same name as the Tom Cruise character from the “Mission: Impossible” movies, owns an online gadget marketplace called Ionnoi Digital, giving him access to Chinese distributors who hawk products that he could easily claim as his own. The tipster mentioned a man named Mike Kalinowski who controlled Micro-Phone’s YouTube account but didn’t appear on the campaign’s page. He said that Hunt and Kalinowski might be the same person.

In addition, the tipster linked to Hunt’s eBay business, and on a reddit page that he created explained that “the site has been shut down as Ebay has suspended services.” Sure enough, if you visit the eBay website, you’ll find a note at the top of the page that claims, “Due to issues within the eBay system effecting the ability for buyers to purchase and or pay for goods from our store we have had to close until eBay/PayPal are able to solve the problem.”

Huh?

What’s more, the Ionnoi Digital website, which Hunt registered in 2010, has four products on it – all the same white 4g iPhone and accompanied by product descriptions in Latin: “Lorem ipsum dolor…” the universal text filler. If you add an iPhone priced at $150 to your shopping cart, you are informed you owe $3,000 (the quantity is set to 20). There is another Ionnoi Digital domain promoting more products, but this one sells iPhones for over $1,000 a pop.

OK, all that is weird. But after further investigation it became clear this wasn’t simply a case of an anonymous vigilante webizen outing a fraudulent company. When I contacted Micro-Phone, it claimed it was the victim. Ethan Hunt said my tipster had been attempting to extort money from him by undermining his business – and was able to back up his claims with third parties, who corroborated his story. In the end, we are left with an even stranger, more convoluted saga. (More on that below.)

Nevertheless, no matter who’s telling the truth, the controversy illustrates a serious problem with crowdfunding and the slippery podium on which it stands. As this fairly new form of funding ascends to monumental status, how are we to verify a campaign’s legitimacy? Crowdfunding proponents point to the beauty of crowdfunding. Everyone is accountable, as the “people” are the funders. Why, it’s the democratization of investment. But the whole system relies on trust, and scammers use that trust to further their nefarious deeds.

Crowdfunding’s emergence recalls the early days of the World Wide Web, when people simply believed whatever was in any email sent to them – even if by a stranger. Websites like Snopes.com were launched to debunk these myths. People used to just retweet information and that was considered reliable. Now, thankfully, people are more dubious. A new report from the Reuters Institute for the Study of Journalism found that most people mistrust social media outlets like Twitter and Facebook for reliable news, and instead turn to reputable news sources for accurate up-to-date information.

We are at a similar point in the evolution of crowdfunding. Now, though, instead of email hoaxes and bullshit tweets, we are seeing product scams on one side and extortionists on the other. A few weeks ago I wrote about an alleged fraudster named Desjon Allen, who commenced a kickstarter campaign claiming to make beef jerky with Kobe Red cuts. Before being shut down by Kickstarter, Allen had raised over $100,000, more than 500% than his intended goal. Three filmmakers caught wind of his campaign and outed him. This included getting background checks, looking into financial records, and calling numerous people.

Then there’s last week’s other Kickstarter scandal. This particular campaign was for a book called “Above the Game,” and promised to teach clueless men how to score with hot women. The author Ken Hoinsky (known on Reddit as TofuTofu) claimed that not only was he good at wooing women, he was “good at teaching others to become good with women.” He had posted snippets of his “book” on Reddit before, leading him to form a cult-like online status. Given his previous online popularity, it was little surprise that his campaign was a success. What was a surprise was how big of a success it was; it raised more than $16,000, well in excess of his $2,000 goal.

With the deadline steadily approaching, however, some realized his book might not be a benign how-to descriptor of being less socially awkward at the bar. One blog dug up excerpts of his past Reddit posts, hailing it as “a book about how to sexually assault women.” Alas, before Kickstarter could act the deadline passed and he received his funding. Kickstarter shortly thereafter released an apology, claiming it would do everything in its power to make sure this doesn’t happen again.

And now we return to Ethan Hunt, a verbose Australian living in Hong Kong who can talk your ear off. Micro-Phone, he explained, is a small cellular phone, so it is not surprising that it shares visual characteristics to other models. He claimed it is the software that differs from the others. He and his team have been working on proprietary system to power the phone, as well as building out the locator function that uses the GSM cellular phone towers and Bluetooth technology to track objects, and not GPS. According to him, it’s cheaper yet less accurate (but it tells you whether your child is close to school or in Timbuktu). The tracker idea, he said, arose from the need to track deliveries from his Ionnoi business. In addition, Hunt says he has years of experience working in technology and knows many inventors and developers.

I cannot confirm any of this, of course. Hunt’s LinkedIn profile is a stub, his only work experience (under “management consultant) being with Ionnoi for the past 16 years. It’s hard to believe that a guy who’s been working as a consultant, whose eBay business was shut down and whose first corporate website has never been fully designed could oversee software development to produce the kind of phone he claims he will deliver over Indiegogo. Then again, it’s not impossible either. And the Micro-Phone isn’t his first Indiegogo project either. He tried one last month for a touchscreen overlay for iMacs that would turn a regular screen into a touchscreen. It, however, did not come close to reaching its goal.

As for Mike Kalinowski, he contacted me early one morning from Australia. He has a thick, nearly inscrutable accent to my American ears, and now hates America because of this entire saga. Kalinowski said he’s an old friend of Hunt’s and is indeed an inventor (some of his inventions can be traced online). He asked Hunt to have his name taken off the campaign because his wife is gravely ill with cancer, and wanted to be placed in the sidelines of this project. Due to the tipster’s most recent allegations, he launched a website trying to set the record straight along with email correspondances, pictures, and legal documents about Micro-Phone.

Hunt and Kalinowski claim the tipster may have a personal vendetta against them and/or their business. He even tried to extort money in exchange for not spreading malicious lies and half truths. The tipster has numerous emails and goes by a few different monikers. Originally he contacted me under the name Yosemite and his Indiegogo account was under the name Michael Gabrill. Hunt has a hunch his adversary works in some capacity for eBay because he posted details about Ionnoi that only eBay employees could have known, and was even was able to find a person by the name of Michael Gabrill who works at eBay. He told me he has contacted the company and it is investigating.

As Hunt portrays it, Indiegogo looked into the situation, asked for verification documents from Hunt — including business contracts and phone models — and deemed the tipster to be a “nutter” (Hunt’s words). Following this, Indiegogo banned the man from the site (who had contacted him through the Indiegogo platform), and worked with Hunt to get third-party websites debasing Micro-Phone taken down.

I contacted Indiegogo, but the company would not release personal information about its users. Hunt points to Indiegogo extending Micro-Phone’s campaign as an admission and implicit apology. In addition, a crowdfunding service called Smartcrowdfunding.us has confirmed that Hunt is indeed a client and there was an extortion attempt. Hunt told me he has informed the authorities and intends to prosecute Michael Gabrill (if that’s his real name). It won’t be easy to track this man down and achieve retribution, though.

According to Hunt cases like these aren’t uncommon. Extortionists have been known to seek out already-successful crowdfunding campaigns, claim illegal damages in some manner, and demand money in exchange for silence. Given that the campaigns aren’t over and new businesses don’t want bad press, often they acquiesce. Shane Liddell of Smartcrowdfunding recounted another client who experienced a similar situation when an extortionist attempted to swindle $10,000 from him.

The beauty of crowdfunding is that anybody can use it, but that’s also its potential downfall. The unfettered optimism that has been rooting these platforms is turning out to be as much a myth as the Gilded Age Rockefeller-esque stories of “anybody can get rich if you set your mind to it.” The platforms, whether they be Kickstarter, Indiegogo and all the others, will be forced to provide more oversight. Because their present caveat emptor approach is ripe for abuse.

[Image via Micro-Phone]