.Don’t Tread on Me

When millionaire real estate guru Russ Whitney sicced his lawyers on a local critic named John Reed, he had no idea what he was getting into.

Russ Whitney is a fierce guardian of his good name. As chairman, CEO, and founder of Whitney Information Network, Inc. (ticker symbol: RUSS), which grossed about $200 million last year, it is his smiling face and shiny crew cut that adorn the placards at the Building Wealth real estate investing seminars held in hotel conference rooms each week throughout the United States, Canada, and the UK.

These free seminars, billed as informational workshops, function as sales pitches for Whitney’s follow-up courses and materials, which quickly run into the thousands of dollars. In 2001, this last point, along with a few swipes at Whitney’s business, was made in a Web forum at Creative Real Estate Online. In response, Whitney sent one of the site’s owners the following e-mail:

Terry, I have been gentlemanly and patient with you. You obviously are “not” a man of your word. If that is not true then I will see ALL POSTS regarding me and my company immediately removed from your site AND YOUR ARCHIVES. Terry, if that is not done immediately, starting TODAY, prepare to spend some money. I will institute a lawsuit against Creonline, you and all Creonline employees. I will also sue every poster on your board that has slandered my good name, in FEDERAL COURT on Monday morning. Count on it! Monday morning. Federal Court. Win or lose, you WILL be spend [sic] money from here on out for the illegal and slanderous use of my name.

Soon thereafter, all Whitney-related posts were removed. In their place was the above e-mail, accompanied by the following response:

Our attorneys have advised us that truth is an “absolute” defense to a defammation [sic] lawsuit, the Courts are not very fond of “prior restraints,” and that it is highly unlikely that a “public figure” like Russ Whitney would prevail in such a lawsuit. However, we are a small company, and we simply cannot afford a protracted legal battle with a big, powerful organization like the Russ Whitney Company. Please respect our wishes and refrain from discussing Russ Whitney here. Thank you.


Terry and J.P. Vaughan

Around the time of this exchange, Whitney made the same demand of John Reed, an East Bay resident whose Web site also contained unflattering comments about Whitney and his operation.

The real estate guru had no idea who he was messing with.

John Reed is a wiry, bespectacled former Army lieutenant with thinning blond hair who spends most days at home. Specifically, in the large, blue-carpeted office on the second floor of his Greek-revival-style house in Alamo. This is where the sixty-year-old writes the books — 26 in total — and newsletter that have been his primary source of income for more than twenty years.

Most of Reed’s books are about real estate investing, and unlike much of the material available on the subject, they are — as titles like How to Do a Delayed Exchange and Single Family Lease Options suggest — nuts-and-bolts guides devoid of motivational or promotional filler. Reed, who charges between $30 and $40 a copy for the roughly fifteen thousand books he self-publishes and ships from his house each year, bristles when his competitors sell what he considers to be useless, incorrect, or grossly overpriced information. And he has been outspoken in his belief that many of his rivals do exactly that. “People have told me that I am becoming something of a curmudgeon,” he concedes.

Shortly after launching his Web site ten years ago as a way to sell his books, Reed began to build what quickly became its most popular feature. In a section titled “John T. Reed’s views of various real estate investment gurus,” he unsparingly appraises, at last count, 168 of his competitors in the real estate advice industry.

Reed’s critical musings constitute a sort of investigative Web log in which he engages with and solicits information from readers who provide tips. Perhaps his highest-profile critique is an ongoing 26,000-word analysis of Robert Kiyosaki, author of Rich Dad, Poor Dad, whose get-rich books have sold more than 27 million copies. Among other things, Reed argues that the author, who is also a Yahoo financial columnist and a regular on public television fund-raising drives, implicitly encourages students to drop out of school, advises his readers to engage in insider trading, and, in all likelihood, dreamed up his financially sage “rich dad,” the central figure in his book. Reed challenges his readers to tell him the point of Kiyosaki’s best-known tome. “When I write something, I want to make sure everyone gets the point — the same point,” Reed writes (his emphasis). “Here is the point of this analysis: Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.”

Kiyosaki may be far more prominent than John Reed, but Reed’s site comes up second in a Google search of Kiyosaki’s name, a fact that gives the East Bay guru debunker considerable clout in the marketplace of ideas.

Back in 2001, the Russ Whitney entry on Reed’s guru-rating page was a far more limited affair. Aside from Reed’s brief explanations of why he found Whitney’s advice to start a property management company to sniff out real estate bargains “dumb,” and his idea to form a contracting company to get wholesale prices on raw materials “dishonest,” it consisted of a few e-mails sent to Reed from dissatisfied former Whitney customers. Angriest among these was David Keith, who wrote that he “was fleeced for $15,000 by Mr. Whitney.” “The only thing that gives me some relief is that I know he will be arrested and do hard time in the future,” Keith fumed. “He is a true crook at heart and a vile little man.”

For Whitney, this slight was compounded by the fact that, like Kiyosaki, a Google search of his name placed Reed’s review near the top of the results. This meant that a person checking out Whitney prior to spending thousands of dollars on his seminars was likely to come across the negative comments. Duly irritated, Whitney had his lawyers send Reed back-to-back letters demanding the removal of Whitney’s name from his site. If not, they threatened, they would sue him for libel and for embedding “Whitney” in his site’s code to boost his Google rank and steal Whitney’s Web traffic.

The latter assertion, Reed says, was “completely made up.” And with a different angry guru threatening to sue him about once every six months, and none of them following through, Whitney’s bluster didn’t impress him much.

“No one has yet told me that WhitneyTM is stupid,” Reed wrote on his site after receiving the letters. “If he files a lawsuit against any of his critics — thereby forcing himself to produce documents, answer questions under oath, and provide potential witness lists under penalty of perjury or contempt — I will add stupidity to my list of reasons why I do not recommend him.”

Whitney’s lawyers sent Reed a final letter in January 2002, this time demanding that he take down four specific phrases from Keith’s e-mails. Reed felt the statements were expressions of opinion, and therefore not libelous, but nevertheless removed all but one of them the same day. “I didn’t have to do that,” he says. “But I’m a nice guy.”

Five months later, a process server appeared at Reed’s front door. Whitney was suing him. In Federal Court.

John Reed has always been driven. The failures of his father, whom Reed describes as a “mean drunk” unable to hold a steady job, motivated him to do better. A hardworking student, he attended West Point, the breeding ground for future Army officers, in the mid-1960s. While there, he observed a friend’s novel way to meet women. Soon, Reed had perfected it. “The System,” as he came to call it, worked roughly as follows: Reed would scour college yearbooks and newspaper microfilm to find pictures of attractive women living nearby. Each Monday, having used “private detective skills” to get their addresses and phone numbers, he sent out letters to as many as six women asking for a date, following up nine or ten days later with a phone call. Reed met hundreds of women in this way. One of them was Marty Tunnell, his wife of 31 years, with whom he has three grown sons.

But his methodical nature has not always served him so well.

One Friday evening during a summer spent at Fort Campbell in Kentucky, Reed, a lieutenant-in-training, was carrying out his unglamorous weekly task of counting his battery’s four hundred or so guns when he noticed that one of them had the wrong serial number. When the arms sergeant made clear that the previous lieutenant didn’t check the serial numbers, Reed astonished him by refusing to sign off on the count. His superior officer, already gone home for the day, was called in to address the problem. Unable to solve it, he called in a higher-ranking officer, and then another, until it was nearly 10 p.m. and the general responsible for the entire division was en route. Only then was it discovered that the gun with the correct serial number was out for repair, and that the appropriate note had not been left in its place.

Standing in a room full of officers whose Friday night plans were ruined by his refusal to sign a false document, Reed realized that the Army wasn’t for him.

And so, after toughing out a stint in Vietnam, he got out. His new mission: find work where he could get rich in a hurry. Before long, he came across How I Turned $1,000 into $5,000,000 in My Spare Time in Real Estate, William Nickerson’s book explaining his method of buying and fixing up run-down apartment buildings. It set Reed on his career path. By the late 1970s, with a degree from Harvard Business School in tow, Reed was a residential landlord, supplementing his income by writing a real estate investing newsletter and charging modest fees to speak at seminars.

In the early 1980s, a sharp rise in home prices caused more people to see the potential for striking it rich in real estate. With this realization came another: There was a fortune to be made in selling real estate investing advice. As Bradley Inman, publisher of the real estate Web site Inman News, explains, “Once the value of the investment began to increase, consumers became a powerful way to make money.”

At the forefront of the resulting wave of real estate gurus now sharing space with Reed was a charismatic, polished public speaker named Robert Allen. Through his book Nothing Down, which focused on purchasing property with no down payment, and his accompanying seminars, Allen promised his followers quick riches largely by seeking out unsophisticated, desperate sellers. Reed was an early critic of Allen, who, he says, presented complicated, rarely applicable, and oftentimes unethical real estate investing techniques as easy ways to make fast money.

Allen’s pool of paying customers for his seminars dried up in the recession of the late 1980s and he eventually declared bankruptcy in 1996, but his legacy, Reed says, was secure. “Allen announced to the world of con artists, ‘Come over to real estate,'” Reed says. “Ever since, there’s been a deluge. I get a new name I’ve never heard of every week.”

Russ Whitney’s June 2002 lawsuit against John Reed alleged one count of unfair competition, two counts of libel, and three counts of trademark infringement. He sought triple his unspecified lost profits, triple the money Reed had made off his name, punitive damages, and legal fees.

While Whitney now had Reed’s full attention, he was unsuccessful in another respect: Reed wasn’t shelling out for a lawyer. Instead, armed with a stack of books with titles such as Sack on Defamation and Sue the Bastards, he represented himself. He started by drafting a motion to dismiss the case out of hand. Despite being overly wordy, it was thoroughly argued, and backed by relevant case law. And although it was not enough to convince the judge, Reed remained undeterred: He was already at work building his case against Whitney’s good name.

In Building Wealth, Russ Whitney’s opus on how, as it says on the front cover, he went “from rags to riches through real estate,” he describes his difficult upbringing, as well as how he went from a twenty-year-old with a dead-end job at a slaughterhouse to owning a million dollars’ worth of real estate by age 25.

Reed studied Building Wealth and Whitney’s other books closely, eager to learn all he could about his opponent. Constructing a timeline — a classic investigative technique — he noticed something interesting: “He wrote about how rough he had it as a kid and how brilliant he was as an investor,” Reed says. In between, however, “there was a four-year hole, where otherwise it was quite detailed.”

Reed put a note on his site asking if anyone knew of Whitney’s whereabouts from 1972 to 1976. Before long, the answer arrived in his e-mail inbox. Whitney, a reader with law enforcement ties told him, had spent much of that time in prison. As Reed verified with a visit to the New York State Department of Correctional Services’ Web site, Whitney was convicted of second-degree robbery in 1974. He soon filled in the details: Whitney had pled guilty to participating in a 1972 robbery of a convenience store and served nineteen months before being paroled in March 1976.

Establishing that his nemesis was an ex-con — and posting it on his Web site for all to see — was not all. In November 2002, amid a steady stream of motions and counter-motions in the legal case, Reed took a four-day trip to Schenectady, the town in upstate New York where Whitney had bragged of making his first fortune in real estate.

A shivering John Reed trudged through the snow and slush in his Californian’s sneakers, visiting, among other places, the county recorder’s office, the library’s newspaper archives, and each of the six properties he traced back to Whitney. When he was done, Reed made his assessment. “On his 25th birthday,” he told his readers, backing up his findings with addresses and property values, “Whitney had $98,000 of highly leveraged real estate.”

And there was more. At the county clerk’s office, Reed found a $1.2 million judgment against Whitney. Initially, Reed assumed it was a real estate deal gone sour. But as he reported to his readers, it turned out to be something else entirely.

Early one winter morning in 1980, Whitney smashed his pickup truck into a nineteen-year-old man who had been standing on the side of the road. The teenager’s head shattered half his truck’s windshield on impact, but Whitney soon drove away, claiming later he hadn’t known what he’d hit. Hours later, a passerby found the victim, who survived, but with severe permanent brain damage.

The criminal case against Whitney went to a grand jury, which declined to indict him. Subsequently, however, a civil jury found Whitney 75 percent liable for the accident and ordered him to pay the victim $1.2 million. Reed tracked down the victim’s lawyer, Phil Rodriguez, who said Whitney had refused to pay up, and threatened to file for bankruptcy before he finally agreed to pay well under a third of what the jury had awarded. That was in 1988. As Reed noted on his site, Whitney had by then been bragging of his multimillion-dollar fortune for years.

Next, Reed got personal. Following up on another reader tip, he found a 1995 paternity suit filed against Whitney, a married father of two. As the court records document, and as Reed dutifully reported on his site, Whitney initially denied having had a three-year affair with a former employee, but after a paternity test showed a 99.92 percent chance that he was the father of her child, he lost the suit and acknowledged that the baby was his.

In addition to child support, Whitney was ordered to pay his former lover’s legal fees. A year later, when Whitney had only paid $250 of the $3,000 bill, the judge gave the CEO seven days to make good on the remainder or face jail time.

Shortly after splashing all this across his Web site, Reed says he received a call from Louis Gigliotti, a lawyer then representing Whitney. “What would you say if I told you Russ regrets having filed this suit?” Reed recalls him as saying. (Gigliotti, reached in Fort Lauderdale, says he doesn’t recall making the statement.)

But the case wore on. And Whitney, eager to compete in the court of public opinion, launched www.whitney-facts-vs-johntreed.com, “an objective and unemotional examination of the falsehoods and distortions in documents written by John T. Reed.” Visitors to the site were greeted by the image of Russ Whitney in a suit and tie, looking up from a stack of papers at his executive desk. Alongside this was John Reed’s impressively unflattering, fluorescent-lit driver’s license photo.

Below the photos, Whitney gave his responses to Reed’s attacks. In “About Whitney’s arrest as a juvenile,” he explained that the convenience store robbery happened long ago, and that prison was for him a time of reflection and renewal. With “About Whitney’s real estate transactions,” he asserted (without providing evidence) that Reed had lowballed the value of his early properties and failed to count several other buildings he had owned or co-owned.

In “About the car accident Whitney was involved in at the age of 24,” Whitney chafed at Reed calling it a “hit-and-run,” emphasizing that the grand jury had found insufficient evidence to charge him with a crime. And though he made no attempt to challenge Reed on the facts in “About the paternity suit against Whitney,” he assailed him for having brought the sordid story to light. “By sensationalizing and publicizing this situation, Reed demonstrates a total lack of concern for whatever damage he might cause innocent people in his own quest to sell his books,” he wrote. “Whitney declines to further discuss what is a private matter between him, his family, his loved ones, his pastor, and God.”

Through spokespeople, Whitney was given the opportunity to respond further for this article, but he had not done so as of press time.

By the time the damage-control site launched in mid-2003, Whitney had filed two more lawsuits against Reed. The following year, he filed a fourth. The subsequent lawsuits alleged, among other things, that Reed had libeled Whitney’s business, whose liabilities at the time exceeded its assets, by calling it “insolvent,” and that he had unlawfully engaged in an e-mail exchange with a disgruntled former Whitney employee.

In preparation for an eventual trial, Reed put a note on his site asking for ideas on a simple theme he could use to tie his case together in front of a jury. One reader suggested “Don’t tread on me.” Reed liked it. He could relate to the rattlesnake, the creature to which the saying refers. “It doesn’t bother anybody,” he explains. “But you poke it with a stick, and you’ve got to be more afraid of this thing than most things.”

It all came to a head in July 2005, when Reed flew to Florida for his first face-to-face encounter with Whitney. They were meeting to take pre-trial depositions, for which Reed had prepared by playing hours of Objection!, a video game designed to train lawyers in speedy, pertinent objections to deposition questions.

The first morning began with Reed deposing Whitney, who was flanked by four attorneys. Soon after the questioning began, Reed says, Whitney leaned across the table until their faces were inches apart. “He was calling me a monster, saying everything I said was lies,” Reed recalls. “He was saying, ‘You can’t handle the truth,’ doing A Few Good Men stuff.” Afterward, Reed says, Whitney and his lawyers joked nervously that a transcript of his outbursts would be on the Web by that evening.

It wasn’t. Instead, after breaking for lunch, Whitney’s lawyers made Reed a settlement offer, and he accepted it. The terms were confidential, as Reed later explained on his site: “Some have offered congratulations. I appreciate the thought, but I cannot accept them. Why? Because to do so would be to imply that I won or that the settlement terms were favorable to me. They are confidential, period. That is the truth. That is what I promised Russ Whitney. And that is how I want him to handle it in the other direction.”

But perhaps the congratulations were not misplaced. Whitney had, after all, failed to get Reed to spend large sums of money on his defense. Moreover, although Reed reverted to “peacetime footing,” removing from his site the Whitney material unrelated to his value as a real estate guru, a slew of embarrassing information — far more than before Whitney sued him — remains there to this day. It can be found under the following bold-face banner: “Whitney, Russ — I do not recommend — If I had numerical ratings, I would give him a lower rating than any other guru.”

A new generation is emerging, however. In a dimly lit conference room at the Berkeley Marina Doubletree last Tuesday afternoon, sixty-odd people of all races and ages, most of them drawn here by a late-night infomercial, sat watching prerecorded testimonials of Whitney customer success stories. After half an hour, a burly man in a dark suit came to the front of the crowd to introduce the day’s speaker. “He is a successful real estate investor. He is a business partner with Russ Whitney. He is also the son of Russ Whitney. Ladies and gentleman, Russ Whitney!”

A doughy man in his mid-twenties, with spiked blond hair, thin sideburns, and a brilliantly sparkling pinky ring, walked to the front of the room. Before long, the younger Whitney was speaking with practiced ease, almost languidly, about his life story: stubbornly attempting to invest in real estate on his own, failing, and then learning at the feet of the master, his father. “I am riding his coattails to the bank every single day,” he said.

Absent from his narrative were the current troubles facing his father’s company. Late last year, the SEC and the US Attorney’s Office for the Eastern District of Virginia launched separate investigations into the Whitney Information Network. There are several issues of concern, including the company’s marketing practices dating back to 2002, potential false claims of success through company products, and the manner in which it has acquired other firms.

Whitney is no stranger to legal scrutiny — he has signed separate agreements in recent years with the attorneys general of Pennsylvania, Michigan, and Tennessee, agreeing to cease what these states alleged were misleading sales tactics — but the recent investigations have caused his company’s stock price to plummet. This, in turn, has triggered a class-action lawsuit filed on behalf of its shareholders. The suit names the company, the elder Russ Whitney, and his recently fired president and chief operating officer, Nicholas Maturo, as defendants. It asserts that if the company’s growth and high stock price were based on defrauding customers, then the rosy reports and press releases from the last three years were fraudulent, too.

These cases are not yet resolved, however, and Whitney and his company have admitted no wrongdoing. Says Reed: “It wouldn’t surprise me if he was indicted on two hundred counts tomorrow. And it wouldn’t surprise me if he was never indicted. He operates in the twilight between what’s legal and what’s illegal, and what gets enforced. He’s playing a dangerous game. And poking a stick in my eye hasn’t helped him.”

Close to ninety minutes into his presentation, the younger Whitney built up to his final sales pitch. The three-day instructional seminar, which he’d initially quoted at $2,995, would today cost only $995. And he’d even throw in, for the first seven people to sign up, the complete home-study kit, a $995 value in itself.

“If you’re sick and tired of being sick and tired,” he said, quickening his speech, raising his voice, and holding up a Building Wealth packet bearing his father’s smiling face, “today is your day for change.”

Just before a dozen or so people headed to the back of the room to sign a contract and pay for the course, the younger Whitney spoke of the organization’s future. “We’ve been around for twenty years,” he said, sweat trickling down his forehead. “I’m still young. We’re going to be here a long time. I’m going to take this business to a whole new level.”

John Reed has compiled an extensive online “real estate B.S. artist detection checklist” to help consumers weed out the shysters. Here are some condensed excerpts.

Marketing through infomercials: Only a small percentage of the American people should be investing in real estate. But the bad gurus are extremely greedy and unscrupulous. They want to make tens of millions of dollars selling real estate investment information. That would be impossible if they only sold legitimate information to persons who really can make use of the information. So they sell shamelessly expensive, pie-in-the-sky information to hundreds of thousands of people who are unsuited for either full- or part-time real estate investment careers.

Emphasis on motivational material: Many of us have had life experiences like emotional high-school football pep talks that gave dramatic evidence of the power of focused motivation. However, motivational material ought to be packaged as such.

Universally applicable techniques: The various techniques one can use in real estate investment are like mechanic’s tools. The one you use depends on the situation and your goal. Just as no tool is appropriate for every mechanical job, neither is any real estate investment technique appropriate for every situation. The B.S. artists trot out one obscure technique after another in an effort to impress the customer with all the “new” material they are getting.

Repeated efforts to sell you more and more expensive products and services: Many gurus, including some whose products seem relatively inexpensive, are intending to suck you in, then pressure you to buy ever more expensive products and services. The gurus who follow this approach are using their cheap products to identify vulnerable people so they can then squeeze thousands more dollars out of them.

Denouncing those who disagree with them as “negative thinkers”: The phrase “negative thinker” is to real estate investment what “counterrevolutionary” is to Communism: a meaningless accusation that can be leveled at anyone who disagrees with the accuser.

Prohibition against recording at free seminars: Many gurus hold free seminars to encourage prospective students to sign up for their “courses,” “boot camps,” and “mentoring services.” No information is given at those seminars. Therefore, there is no legitimate reason to prohibit recording. Gurus who prohibit recording of free promotional seminars are doing so only to prevent you from gathering evidence of the fraud they are perpetrating.

Asking you to sign a contract: This prevents you from disputing the credit card charge for the bad seminar or “mentoring.” Apparently, when there is a signed contract, the credit card company has to tell you that you have to sue to get a refund. If there were no written contract, they could just credit your account.

Use of the following words: Perfect offer, confidential, sure-fire, removes doubts, secret (if it ever was a secret, it stopped being one when he sold the first copy), cinch, always, lazy way, anyone can make a killing, removes risk, easy money, easily determine market value, air-tight, take the fear out, risk-free, judgment-proof, insider, painless, foolproof, safe, win/win, removes guesswork, easy, magic, bulletproof, gold mine, complete, riches, this is not a get-rich-quick scheme, automatic, dream stealer.

Physical presence in Florida or Utah: A very large number of B.S. gurus are located in Florida or Utah or both or are associated with businesses there. Not all gurus in those states are bad. The people of Utah are the ones who need to explain why their state is the real estate phone scam capital of the world. Florida has a long tradition of selling underwater lots and swamp land. They also have a bankruptcy law that allows Floridians to declare bankruptcy yet keep their principal residence regardless of its value! Nothing Down guru Robert Allen went bankrupt in California some years ago. There, a married couple can keep just $75,000 of their home equity. Guess where his principal residence is now? I heard from some readers that it was in the Orlando area. Another reader said they are in Utah. I guess it has to be one of the two.

Blank paper and/or filler: B.S. artists’ books contain much blank space resulting from double-spacing, huge margins, extraordinary numbers of blank pages, large type, and so forth. They also tend to devote many pages to filler, like directories of government agencies or blank forms.

No acknowledgments: Here is an item that is virtually effortless, but the B.S. artists still leave it out. It is traditional, gracious, and appropriate to thank the people who have contributed indirectly to your book in an acknowledgment section in the front. We all have benefited from valuable support, advice, and opportunities provided by others in our careers. Are these guys so lacking in character that they can’t even say “Thanks”? It certainly wouldn’t cost them anything. They could put it on one of their many blank pages.


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