For over two decades, the Directors of Bartercard have successfully run their [Barter] Trade Exchange as a PONZI Scheme. In this post I explain why this is so; I detail the winners and losers as a result of this deception and I predict its imminent implosion (regardless of their success or otherwise of their current IPO). This is vital information FIRST for potential investors in their IPO; SECONDLY for Bartercard Members with Credit balances and THIRDLY for IRTA decisionmakers who have recently endorsed a shonky deal with this company.
Bartercard is a Barter Network. It is a Trade Exchange that entices businesses to join as a Member, then provides increased trading opportunity by encouraging trade within the network. The business model is sound, perfectly legal (having been heavily researched and approved by many countries across the globe) and in many cases helpful to those Members who are a part of the system.
However, Bartercard Management has perverted the purity of a Mutual Credit (basic double entry accounting) Trade Exchange and run their system in a manner fully equivalent to that of a Ponzi scheme.
This is how the Ponzi scheme at Bartercard works . . .
Bartercard retains full control of all financial information and does not share that with their Members. The Bartercard business is not a co-operative; it is a private business so they are entitled to do this. The Barter Dollar is a privately owned and controlled currency. Members do not have access to full financial records and cannot ever assess the true value of their currency. They must trust Bartercard that one Trade Dollar equals one [local currency] Cash Dollar, yesterday, today, tomorrow and that this has or never will change. Whew! That’s a big task.
Here then, enters the opportunity for deception; an opportunity that Bartercard Directors, Employees and Associates have been milking for as long as I can remember, in fact for over twenty years straight.
NOBODY CAN EVER KNOW THE FULL STORY!
As with many stories fed to us by spin-machines, their claimed success has not been because of stunning service, nor great value (to the contrary actually) It has been due to their marketing skills, aggression and willingness to game the system FAR MORE than even the bravest of the brave out there in competition with them.
Setting The Scene
So, if one Member [ A ] sells a product for $100.00 then their Trade Balance will be $100.00 positive. The buyer’s account [ B ] will naturally be negative $100.00 (they will be in debt to the value of the transaction). This is a perfectly natural situation.
The first diagram shows this naturally balanced accounting.
However if Bartercard wanted something for themselves [ B ], they could simply open a ‘House Account’ and purchase those goods to the value of $100.00 from the Member [ A ]. They then become another “Member”.
The seller [ A ] would still have the same $100.00 positive balance but Bartercard [ B ] would now have the goods and the debt to the system.
Again, as with the first scenarion this is not a problem per se.
It *COULD* be perfectly legitimated business transaction BUT it is a very dangerous situation because of the temptation to game the system. After all, nobody would ever know they were doing it, and if they did know then they would never know to what extent they were doing it.
If Bartercard has little to offer for sale or doesn’t even WANT to make anything available for sale (there is little motivation for them to do this BTW) then a potentially very serious problem has been introduced into the system.
Bartercard’s House Account can grow, eventually way out of control and just suck the system dry – milking it. When or if this happens then all members will be in credit, Bartercard will be in debit to all the Members.
The Members with the credit will not be able to spend their credits, because nobody will want MORE credits, for they too will not be able to spend them (certainly not easily).
In this situation the whole system will go into grid-lock. The value of his credits will reduce – simply because he can’t spend them to get back real value. This is called INFLATION – just the same as in the cash economy – where a currency (a method of payment) has reduced spending power.
But it gets worse . . . for if Bartercard extended more credit to Members they could then leverage EVEN MORE than the original $100.00 sale value.
Bartercard has been in this very situation for as long as I have known it and it has been steadily worsening for the last five years as less and less members come on board and credit balances have become the norm. Rest assured that 80% or more of Bartercard Members approached to sell their goods or services DO NOT respond with, “Oh YAY! Please yes, trade with me. I want more Bartercard credit to pay off my overdraft!” No, the response is usually, “I’ll take a portion on Trade, or limited sales on trade if I have to” but they have increasing difficulties clearing their own credits.
In the second diagram the members are largely all in credit. If only a few are in debit, then where has the money gone? Simple – to the banker who has been scamming the Members from DAY ONE!
The problem again? It is only because of an ultra-large deficit in the Bartercard House Account that has sucked the real value out of the entire trading system. It’s an elaborate form of theft by Bartercard from their Members.
Now the first issue is not whether Bartercard is entitled to trade with their own members or not (they are) but it is whether or not the Members are aware of what Bartercard is doing to their system (gaming it).
This disclosure issue is the key point. If the Members are aware that a) Bartercard is gaming the system and b) How much they are gaming the system then it is their choice whether or not to supply goods or services into the system. If however they are unaware that the system is being gamed then there is injustice, and in most jurisdictions around the globe, there is commercial disclosure legislation that frowns upon such deception. I’ll put it another way . . . when or if ASIC or the Aussie taxman investigates Bartercard, there will be very serious problems for many people!
Bartercard DOES NOT inform their Members of the status of their House acount and they actively conceal the true status of the Bartercard economy by hiding their true liabilities in offshore companies and other creative accounting practices.
Bartercard is very active with clever techniques used to deceive – first of all their Members, secondly to the taxman, and more recently the public (with their deliberately misleading Prospectus).
2. Intent to defraud
The second issue though is whether this is deliberate and deceptive conduct or not. There is a difference between incompetence, ignorance and deliberate fraud. In Bartercard’s case this has been very longterm and consistent conduct. Their attitude is totally immoral and actions in concealing their ‘House debt’ are clearly fraudulent conduct.
To give you an example of this deliberate knowing intent to deceive, if any Bartercard representative has ever said, “We have creative ways to make deficits appear” (and I know whether this has actually happened or not) then this is a clear prior knowledge of deceit. If techniques of deceit were devised by and taught by Wayne Sharp (founder of Bartercard) to his team, then it is very likely that over the years that knowledge and those techniques were exported by ex-staff members and [probably] implemented elsewhere as they have variously departed from Bartercard and moved around the industry. I know too the answer to whether this has happened or not. It has.
Investigators will find a clear audit trail and ample evidence of a deliberate, concerted longterm effort to conceal debt by Bartercard’s management.
The Ponzi Scheme
But again, it gets worse . . . Bartercard’s greed over more than two decades has built their House account deficit to so large a value that it CAN NEVER be repaid. NEVER! Several hundred million dollars in liabillity to their Members is TOTALLY IMPOSSIBLE to repay EVER! Thus the only way that they can feed their existing Members’ requirements is to bring in MORE members in order to keep the house of cards from falling. Thus we have the similarity to a Ponzi Scheme. If they stop selling then they’re in deep doodoo as they will go into grid-lock with all members in credit and no new members to bring in value.
If they cease carrying on their current dishonesty and fess up to their liability and they’re dead for their tax liability first-up would kill them in one single stroke and their repayment obligations to their Members not being honoured even to the tune of 1%. It’s a classic Ponzi Scheme with tears at the end an absolute certainty for all except those at the top who most likley ‘can’t be found’ and if they can, will simply not have the money any more. Oh darn!
Bartercard is totally caught in a trap of their own making and they can now NEVER get out. Their crooked operation can only continue to operate as long as the [astronomical] debt is hidden from the members and as long as there are new Members coming in that can be ‘worked over’ to prop up existing Members’ needs sufficient for them to stay in the system.
Unfortuantely for them though, with five years of constant downsizing, increasing problems on every front possible and their burgeoning debt, Bartercard has no choice but to seek funds from sources outside of their current business model to keep the business going – hence their recent IPO attempt of course.
I believe that the real situation is that contrary to the spin surrounding the IPO, the Ponzi leaders are actually just on the verge of jumping ship, as they know that the game is just about up.
Bartercard is not simply broke . . . it is not simply trading insolvent . . . it is grossly fraudulent deception of the marketplace by a massive almost inconceivable amount . . . for Bartercard’s deficit spending is well over $100m AUD. I personally estimate it to be over $200m or possibly even much more. The point is that if people (or an organisation) lie about little things like hiding $100m of debt, one would question whether in fact the $100m was accurate in the first place. I tend to doubt that, especially given the information that I have had given to me.
I’ve based my assessment on multiple sources of information much of it I consider to be very reliable. In taking my best guess I have assessed the timing and quality of the source; looked at the patterns of behaviour; taken into account market conditions and the various structural changes to the business (Wayne Sharp sold out to the new boys a couple of years ago and that may have altered debt creation and hiding practices a little).
Investigators will find the facts – despite the deceptions, they will find the difference between the sum total of the credit balances does not match the sum total of the debit balances – that’s the first clue as to how big that liability is. Then to research right-offs and deals with other ‘non-existent’ reciprocal exchanges, offshore and all the tricks in the books – then any entity that is remotely associated with Bartercard and their Directors, Staff and so on.
The Bartercard currency must eventually implode.
The factors influencing the timing of this implosion will be:
- Bartercard Members learning of the size, nature and deceptions surrounding the secret ‘House account’ debt to the Members. True valuation of the currency will occur and there will be a run. Members will be desperate to get out, to get ANYTHING for their highly overvalued credits.
- Failure to succeed with the current IPO will cause immediate subsequent cashflow problems that will no doubt cripple the business
- Intervention of the appropriate authorities – tax, commercial standards or criminal would all have a field day. Simply knowing that Bartercard is under investigation could easily bring down the house of cards, probably immediately.
The acid test of the value of a currency is how much of something valuable can be traded for it. Just as millions of dollars in jewellery would be worth nothing in comparison to a simple seat on a Titanic life-raft, so too would millions of dollars of Barter Credits be worthless when it is widley known that the currency is fast going down.
Bartercard’s valuation of its currency is that $T1.00 = $AUD1.00. That’s the sales and marketing spiel. It’s unrealistic.
Traders currently exchanging goods and services would probably value the Barter Trade Dollar at perhaps 80c in the Dollar. It’s not as flexible as cash but if they can trade and get something reasonable value they would trade.
The current market valuation for cash conversion is around 20c – 25c in the dollar. You can sell one Bartercard Trade Dollar for perhaps 25c [cash] in the Dollar at the moment.
All this will change drastically when it becomes widely known that Bartercard has a massive undeclared [secret] deficit. My estimation of the valuation once this knowledge becomes public is probably more along the lines of 1-2c in the dollar, most likely worthless. The reason is that if Bartercard brings their off-balance figures into play, then they will lose all credibility, the maths is simple – 20 years of greed will be on show for all to see and people will ask, “Why are we feathering their nest at our expense?” There is no reasonable answer.
When taking all the facts into consideration, the Bartercard Trade Dollar is grossly inflated by all possible measurements. It’s a huge, massive balloon just awaiting to burst. It’s true value is as close to NIL as you can get.
I repeat that while the concept of a Trade Exchange based on Mutual Credit can be very helpful at times; is perfectly legal across the globe; and proven to work well when proper checks and balances are in place, Bartercard has consistently gamed their own system for their own benefit long past the point of no return.
Bartercard has been running their business like a Ponzi Scheme that requires increasing supply of new Members in order to perpetuate the scheme. Whether it’s a scam, a rort, a fraud or whatever word you want to call it, Bartercard is definitely a Ponzi Scheme.
The Barter Series
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