Remember Robert Kiyosaki, the it financial guru of the housing-bubble years? He co-wrote a small, self-published book with accountant Sharon Lechter called Rich Dad, Poor Dad that became a sales phenomenon. It spent years—from 2000 to 2008!—on the New York Times best-seller list. And as Slate wrote in 2002, it peddled some very, very suspect advice.
Rich Dad, Poor Dad is considered one of the best-selling personal finance books of all time. It combined the wish-fulfillment appeal of The Secret with what could be called a practical action plan in the age of easy credit—mainly, buy homes and properties with as little money down as possible, then enjoy the income flow.
No one ever went broke underestimating the financial smarts of the American public. In some cases, like Kiyosaki’s, they earned millions.
Kiyosaki’s still out there, but he’s kept a lower profile in recent years. But this month brings news of the former favorite personal finance guru in the form of an ongoing legal dispute between Kiyosaki and his former sponsor, the seminar company the Learning Annex.
According to the Wall Street Journal, the Learning Annex is petitioning a U.S. Bankruptcy Court in Wyoming to unseal a lawsuit pertaining to the bankruptcy of one of Kiyosaki’s company’s, Rich Global LLC, which has been closed to the public since it was filed in 2014. The Learning Annex’s interest? Well, the Kiyosaki-controlled company declared bankruptcy in 2012, after the Learning Annex won an almost $24 million judgment against it.
Here’s the backstory, a saga that might perfectly illustrate the shadiness of the personal-finance advice racket.
Back about a decade ago, the Learning Annex, which now mostly runs self-improvement seminars and coaching sessions online with hosts very few people have ever heard of (example: Wild Flower, a woman who offers something described as a “Psychic Intuitive Life Coaching session”), was a big deal in the real world.
One of the Learning Annex’s big crowd draws was the Real Estate Wealth Expo, which promised to teach attendees how to “make more money, improve their relationships, empower their lives and support personal and spiritual growth.” The company found enough people who thought they might change their life path in a weekend that it rented out venues like New York’s Jacob Javits Center and the Boston Convention Center, packing in folks to hear speeches from folks like Donald Trump, Suze Orman, and yes, Robert Kiyosaki.*
According to Bill Zanker, the founder of the Learning Annex, he had discovered Kiyosaki when he was hawking Rich Dad, Poor Dad during the dot-com boom by speaking “to groups of 20 or 30 people” at Holiday Inns. The Learning Annex promoted Kiyosaki, even though no one has ever been able to prove that the “Rich Dad” of the title actually existed, or that Kiyosaki had earned any of the great wealth he seemed to tout before he made it big as a personal-finance guru. And make it big, he did! Soon Rich Dad, Poor Dad was reprinted by a mainstream publisher. Kiyosaki appeared before throngs in Madison Square Garden, went on Oprah, did the Wealth Expo, and co-wrote two books with Trump.
So what set Kiyosaki apart?
Most personal finance gurus preach sacrifice. They’re scolds, suggesting readers give up pleasures small (lattes) and large (houses they can’t afford) in the interest of saving up money and, almost always, putting it in the stock market where it will grow automatically till the day they retire and actually need it.
Not Kiyosaki. He didn’t believe sacrifice would much help anyone, not in the age of inequality, which he talked about in a quite forthright way years before it was generally acknowledged in polite company. (“The rich are getting richer, and the poor are getting poorer”—Kiyosaki, on the Larry King Show, 2006.)
You need to think like a rich person—like the “rich dad” whom Kiyosaki claimed had mentored him. (“Poor dad” was Kiyosaki’s own father.) Cash flow, baby. Invest in multiple businesses and homes, preferably with someone else’s money. He claimed readers could find investments that “have returns of 100 percent to infinity. Investments that for $5,000 are soon turned into $1 million or more.” In another book, he suggested it was easy to short stocks with a margin account in which you had no money on deposit. (Would someone try this and write back? I’ll write a column about you, I swear.)
All this made business journalists and personal-finance types mad as hell, because in their view, Kiyosaki offered dodgy advice and appeared immune to exposés, not to mention the occasional blast from Suze Orman. Instead, PBS affiliates aired a special featuring him during pledge week. (Viewers got so angry that PBS’s ombudsman wrote a blog post summarizing their complaints.)
It was all going so well that in 2005, Rich Global—Kiyosaki’s company—and the Learning Annex entered into an agreement to jointly offer seminars based on the Rich Dad brand. You know, classes where people could learn the secrets of Kiyosaki from teachers. But a few months later, Kiyosaki and co-author Lechter decided to go with another outfit then known as the Whitney Education Group.
But Zanker felt they already had an agreement, and eventually, the Learning Annex sued. Ultimately, Rich Global was ordered to pay the seminar company almost $24 million. That’s when Rich Global filed for bankruptcy, claiming only $1.8 million in assets even though, according to the Wall Street Journal, the company earned $45 million in royalty payments from Rich Dad seminars between 2007 and 2010.
In the meantime, Lechter and Kiyosaki also fell out. She also took to the courts, claiming that Kiyosaki “executed a plan to willfully destroy the joint venture, while simultaneously and purposely diverting opportunities belonging to the joint venture to one or more entities owned exclusively by them.” That roughly translates to “moved money around so he didn’t have to pay me my fair share.” The suit ultimately ended with an out-of-court settlement and Lechter receiving a negotiated $10 million payday.
As for those seminars, maybe Kiyosaki should have let the Learning Annex offer them up, and not just because of the lawsuit. They turned into something of a public-relations nightmare. Complaints on message boards were legion. The Canadian Broadcasting Corp. sent a hidden camera into one in 2010, where it discovered—just like so many wealth seminars, including the ones offered by Trump through Trump University—they were mainly selling people on the opportunity to purchase more specialized and expensive seminars costing thousands of dollars. (Since then, Whitney has gone through a name change and a reverse merger, and is now folded into a company called Legacy Education Alliance. It still offers Rich Dad seminars via an agreement with another Kiyosaki concern, Rich Dad Operating Co. You can attend one this weekend in Denver or Honolulu, in fact.)
But the money, the money! So what happened to the money? That’s a good question. Rich Global said in 2012 it would never move around funds in advance of a bankruptcy filing. And that brings us back to the latest round. The Learning Annex is skeptical of Rich Global’s claims. It further believes that this case in Wyoming—filed against Rich Global and a number of other Kiyosaki-controlled corporate entities by the lawyer tasked with helping it pay off its debts—revolves around the same issue. So the Learning Annex would like to open it up so the public—which would include the Learning Annex’s lawyers and forensic accountants—can see what’s up.
Till that day comes, no one knows why this case was sealed and if that’s indeed what’s going on. But in the meantime, consider this your regular reminder that most personal finance gurus get rich not from their investment smarts, but from their ability to sell you on their investing smarts. Also consider this a reminder that the strategic use of bankruptcy helps, too. Just ask Kiyosaki’s onetime writing partner, Donald Trump.
*Correction, Feb. 11, 2016: This post originally misspelled the name of the Jacob Javits Center.