North American Barter Association Issues Fraud Alert

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Beware of Barter Franchise Fraud

The North American Barter Association (NABA) today issued a national fraud alert to consumers being approached by a company offering “incredible business opportunities” as one of their franchisees. Barter is a great legitimate way to do business that saves merchants millions every year. However the lure of barter provides unscrupulous con artists the ideal vehicle to offer “lucrative business opportunities” in the way of “licensing” or “Franchises”. NABA investigator David Stryzinski warns “If you are approached with such a “great deal” especially when the proposed territories are “exclusive”, and “residual income” is phenomenal, be sure to ask for the following:

•Certified financial statement of the parent company

•The last 3 years of tax returns of parent company

•A list of EVERY current licensee/franchisee with phone numbers (and call at least a dozen of them yourself!)

•Verifiable resumes of the principals

•Membership in NATE, IRTA, NABA, and/or BBB

•Corporate certificates

•A reputable CPA and bank reference

In a recent NABA investigation of one such barter exchange in Pennsylvania born from a growing mountain of complaints, NABA investigators found the owners selling “exclusive territories” for $50,000 to $300,000 even promising to “buy back” the territory from the new owners if they weren’t “100% satisfied”. However NABA’s investigation revealed that of the 28 territories they sold, 22 folded within 6 months of opening and telephone numbers posted on the internet are no longer in service. NABA investigator David Stryzinski discovered that failed territories were simply resold. He also discovered that many "reference letters" presented to merchants and prospective franchisees were fabricated. "It all looks great on paper" as one victim from Detroit lamented.

When the failed franchisees asked for their “guaranteed buy-back” they were told to “read the contract carefully”. The refund clause only applies to those franchisees which survive “18 consecutive months”. Intelligent people are being duped into investing between $50,000 to $300,000 into these franchises with glowing references of other supposed “franchisees” which our investigation revealed to be plants paid a few hundred dollars a week to take a few phone calls and say great things about the company. Sometimes they were even relatives.

In the current case NABA recently referred to authorities for criminal investigation, the company claims to have “40 locations nation-wide” but could not identify more than seven to our investigator. According to Stryzinski this company moves from one executive office in one city to another whenever the complaints begin to mount. NABA warns consumers to be very suspicious and extremely cautious with a barter exchange that is constantly “relocating”. NABA recently suspended and fined the company in question which simply moved from New Jersey to Pennsylvania, presumably to evade litigation from complainants, four of whom contacted NABA for assistance in obtaining refunds. NABA Executive Director Nathan Fobers stated, “These folks only need a few ads in newspapers and an 800 number to con people out of their money”. In this particular case NABA investigators learned that the President of the company doesn’t even go by his legal name owns property and vehicles under various aliases.

Because of clever wording in their contracts, those swindled out of their money seldom can afford to spend even more money on expensive lawyers to take the con artists to court. Meanwhile, company uses full-page ads in magazines, glossy packages, and beautiful web sites to lure even more unsuspecting people into their “incredible business opportunity”. In many cases NABA investigators found them selling the same territory twice in the same year as they did in Atlanta, Detroit, and Vancouver! NABA interviewed one of their former sales reps who admits they know in advance that even the hardest working franchisee will fail within 3-6 months and the parent company just takes over the accounts they did manage to open and pockets huge profits on the franchise/license fee. “It’s a very profitable revolving door for us” the sales rep told investigator David Stryzinski. Stryzinski then found the owner of the company building a $3 million new home with his fabulous profits – not from barter – but from franchise and licensing fees.

Forbes is quick to point out that “The vast majority of barter exchanges are legitimate operations run by decent honorable people”, but cautions the public to “deal only with barter exchanges affiliated with IRTA, NATE, or NABA with a clean record with the BBB.” Yes, barter is alluring but vulnerable to exploitation. NABA urges those that want to enter this business to use extreme caution and truly take the time to do their due diligence. “Go to barter conventions, get some good trading software and forget about “franchise” and “licensing” fees that exceed $5,000 per city.” Advises Forbes, “If a existing barter exchange is not elated to have a new location working for them at no cost to them, on only a profit-sharing basis – it is most probably a scam like the one we found in PA” Stryzinski added. The old rule still applies; if it sounds too good to be true it probably is. NABA invites anyone with information about suspected barter fraud to contact them in confidence at 1-800-917-2588 or by email at NABA @ email.com.

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Nathan Forbes
NORTH AMERICAN BARTER ASSOCIATION
1-800-917-2588
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