In this post I describe the life cycle of a Commercial Barter Exchange, describing the way that it is developed, defrauded and then expires. I use the current situation developing a case to get the authorities involved in looking at the BBX fraud in New Zealand. Enjoy!
BBX, like Bartercard is a Commercial Barter Exchange, sometimes called a “Trade Exchange”, that was established in Australia a few decades ago. Wayne Sharp established Bartercard first, then Michael Touma followed shortly thereafter. Like all crooks, they copied each other, stole from each other and learned off each other as they developed their membership during barter’s hey-day.
“Trust us!” they proclaimed, and then both of them like the vast majority of exchanges across the globe ripped their members off blind, milking it for as long as they could!
In 2017 I analysed the BBX fraud using the actual membership statistics to do so. My resulting book The BBX Investigation and blogging at the time exposed these frauds and had a massive impact on both Australian crooks but the BBX operation has continued to defraud NZ businesses, fortunately now mainly down to fees only, as trade has now dried up, the few members that are left reporting zero turnover.
A typical commercial trade exchange runs through three stages – development, a plateau or consolidation, and then the wind-down before its ultimate demise.
Commercial Barter is based upon Mutual Credit. In an ideal world this is an interest free credit system where a centralised agency (at a country level it is the government that authorises a Central Bank) establishes a currency and encourages its constituents (members in a commercial sense) to trade using their preferred currency. There are always tensions between different currency providers (the USD vs the Euro or the NZD for example) which is why there are wars, as Michael Rivero explains in All Wars Are Bankers Wars.
The same forces apply in a commercial sense as the different barter currency providers compete for their members’ business. It made sense for any new-boy on the block to work with the incumbent’s database as a prospect list, because their members already understood the basic trading concepts. In the development phase a proprietor would work hard to “get new members” thus build up the potential for capital injection, which in turn increased the value to their members. Bringing increased offerings into the exchange meant that the value to the members increased as traders could then exchange what they had to sell for real value, their goals of course.
Depending on who the principal was depended upon how this development phase went but Bartercard successfully built their business upon the franchise model – making their mark through regional operators, who of course they eventually shafted! Others like Michael Touma and his BBX fraud leaned more towards property, and others like Daniel Evans doing anything and everything in his Ozone/Ormita fraud. There are a gazillion others across the globe, notably downunder and historically Empire in Australia, and NZ Barter and the Green Dollar in New Zealand.
Getting in on the ground floor of a developing trade exchange can be an exciting aspect of doing business, generally the first couple, perhaps three years before the founder’s energy wanes and the business moves into its second phase . . .
2. Plateau Phase
Once an exchange has a couple of hundred members it will then tend to plateau until the next injection of energy comes. This is the phase where real money is won and lost. Typically it is by now that opportunities have developed for the principal to defraud the system – property and taxes are the easiest to move value sideways, but there are many opportunities that can arise in a trader’s life.
The theory is that income comes from membership fees and trade turnover but this income only ever really funds the costs to develop it and to maintain it. In business it is common to see a business lose money in the first 6 months, break even in the second six month period and then make a bit in the third six month period. This loss and profit in the first and third six month period are the same so that it is after 18 months that the business has returned to the owner what he is worth. Tax then applies!
What happens though to all but the most dedicated of owners is that additional benefit comes from putting the hand into the kitty. This may be outright theft, such as taking an item of real value out of the barter system for personal benefit (cherry-picking is another form of theft) or it can be tax avoidance or other risk to the members. As Bartercard’s USA second revival man Paul Bolte has explained, the concealing of debt is the critical aspect of doing better numbers. During this plateau phase the exchange generally makes money, and can often be seen as an exchange’s Hey-day.
Continued investment can take it bigger, thus moving the exchange into the big-time. Most will either fizzle out around the 200-300 member mark or merge with others in acquisition mode. In New Zealand Bartercard continued to develop.
For the record, I was a part of the early NZ Barter exchange and joined Bartercard when we had only 300 members. I purchased a Bartercard franchise for Fiji from NZ’s owner Kerry Gordon and planned on taking both Bartercard and Personalised Plates up to Fiji, before Cnl Rambukka did his stuff’ and our contact (the Minister of Internal Infrastructure) was ‘sidelined’ politically! We saw opportunity for sugar and tourism, mainly into Australia. Sadly this appears to be an opportunity missed, both for Fiji and myself.
3. Winding Down
Like dogs, all systems have their day. Whether they are propped up and persist or whether they are killed off quickly it matters not, but the seeds of their demise are established by crooks at the outset, but for most people during the second plateau phase. The temptation is usually too great for those with power not to use it, thus the pilfering commences when the pressure comes on and the temptation to fudge comes the way of the principal.
Devaluation of the currency (also called “inflation”) comes as the people owing to the system hide their debt and the people owed by the system increase. This devaluation is best measured by the traders, thus seen when nobody wants to take the currency in return for real value. Logically, why would they put good money after bad?
Gradually the exchange will lock up. Members will typically start to accept only a part of a transaction in trade, thus the managers’ attempts to legislate some maintained value. BBX and Bartercard both state in their membership agreements that one of their trade dollars equates to one local dollar, and this is a form of currency protection.
BBX for example puts it this way in Clause 4.1 of their agreement:
4. NATURE OF TRADE DOLLARS
A Trade Dollar or BBX Trade Dollar is an accounting unit (notionally equivalent to one Monetary Unit) used to record the value of goods and services Traded. Trade Dollars are not legal tender, securities, debentures or commodities. In these Rules, the cash equivalent of one Trade Dollar is one Monetary Unit in the relevant international jurisdiction.
BBX’s problem (as it is with Bartercard and every other barter exchange that legislates this equivalence by fiat) is that while they legislate equivalence by a membership agreement, there is an expectation from the member whom they sign up of good faith conduct to genuinely manage the currency to maintain this equivalance. The member has no tools to control the value of the currency they have invested into – none. The membership agreement assumes but doesn’t state that BBX will do the honourable thing. The member joins on the BBX system with a natural assumption of integrity and honesty of course, but hey these are crooks out to make a buck aren’t they?
The way that BBX can maintain the equivalence is varied but these include credit control – not issuing credit to people who will go bust on the system, management of a debt reserve fund and operating the system for the members’ benefit. When there is a truckload of value missing (in NZ’s case it is in the order of $7.5m) one simply has to ask where it has gone. The answer will reveal the crooks – BBX themselves!
As a trader we could choose the currency we could use for a given transaction and most traders who joined one system would have access to other payment systems. We would assess the relative value of a certain currency and if a trade was say $10k, we could structure the deal something like, “$2k contra, $5k cash, Bartercard $T2k and BBX $1k”.
While each provider encouraged traders to use their currency, some legislating “All trade or no trade” at the end of the day it is always the traders who determine how and what they will trade, therefore the value of the currency. BBX in NZ has zero trading, the currency has been 100% stolen therefore their currency has zero value. No new members, no value, no trading means no credibility and no hope for their future.
It’s nothing personal, it’s just ‘bye bye BBX’!
I note also in passing that Caroline Macdonald, Michael Touma’s daughter and chief poncho at BBX in Australia has spoken at the IRTA convention in Las Vegas recently. My understanding is that her successor Jarrad Parke slipped on up there with her and that ‘a good time was had by all’! IRTA of course condones use of their members’ members’ value – but only a small percentage (of course) and only for a good cause (of course).
Anyone who knows how the slippery slide works however, can see though this endorsement of evil.
The lawyers and the authorities will [hopefully] be looking a little closer at this BBX fraud thing in due course. I will report on their findings as always!