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Russ Whitney’s losses skyrocket to $30 million

Russ Whitney runs a publicly-traded company that goes by the stock symbol RUSS and is publicly traded on the Over The Counter Bulletin Board. Because it is publicly traded, Whitney has to file quarterly and annual financial reports with the Securities and Exchange Commission.
The 2004 Whitney annual report is now out. It reveals among other things that:
• Whitney Information Network, Inc. lost a record $29,896,000 in 2004.
• Their cash fell from $15 million in June, 2004 to $6.8 million on December 31, 2004.
• Whitney Information Network, Inc.’s net worth plunged to a record low MINUS $33,609,000. It was “only” MINUS $4,157,000 at the end of 2003.
• Their biggest lender is you, the students who paid for seminars you have not yet received. That debt, called “deferred revenue” in Whitney’s financial statements, hit a record $62,689,000 by the end of 2004. Most of the students who have loaned Whitney Information Network this $62 million probably do not even know they are the corporation’s biggest lender. Which probably explains why they don’t charge Russ any interest on a $62 million loan.
• What was “Emperor” Russ doing while his corporation’s losses and negative worth were soaring by tens of millions? Giving himself a raise. His salary and bonus went from an outrageous $675,000 in 2003 to a doubly outrageous $1.2 million in 2004. Not to worry though. The annual report says Russ and the other executives are going to take a pay cut because of the dwindling cash reserves. Something to look forward to.
• They seem to have lowered their prices for the first paid real estate seminar dramatically, although the annual report said they raised them. I’m hearing that the first, paid, three-day seminar is now $300 to $500. Used to be $1,790 (Or $4,000 something if you ever believed that line). I am also hearing that they are only getting three to five students at some advanced seminars. Apparently that’s a lot less than they used to get.
• Whitney’s advertising and sales expense rose from 22% of sales in 2002 to 29% in 2003 to 57% in 2004. When it hits 100%, he might as well just sell the seminars to himself and cut out the middleman. Reminds me of Whitney making his latest book an Amazon best seller for an hour by telling his employees to buy multiple copies during that hour and reimbursing them for the purchases.
• Whitney lost $500,000 in an abortive attempt at buying Discount Buyers Association of America. That sounds like Russ Whitney’s first “employer” after he quit working at “the slaughterhouse” (Tobin Packing Company in Albany, NY). That first “employer” was the Confederation of Organized Purchasers, Inc. I put “employer” in quotations marks because Whitney says he never received a penny for his work. The company went bankrupt. Whitney is apparently a slow learner when it comes to the idea of consumers banding together to get discounts..
He was working for the Confederation in 1980 when he hit a pedestrian and left the guy unconscious, bleeding, and severely injured on the side of the road, then went home without telling anyone about it.
• All of Whitney Information Network, Inc.’s debt to regular lending institutions appears to be secured by mortgages on buildings or planes or certificates of deposit. They’re no dummies. It appears that only his students make unsecured loans to Whitney Information Network, Inc. I think Whitney calls that using “Other People’s Money.” His students may not realize they are the “Other People”—the usees rather than the users.
• Whitney Information Network, Inc.’s own auditors told the corporation that it had problems with regard to turnover and adequacy of accounting and finance staff, SEC reporting, accounts not being reconciled on time, less than appropriate documentation of certain business transactions, and certain accounting records not being properly maintained.
Make more from seminars than real estate
Many suspect that Whitney and others like him make more from seminars than they ever did from real estate. Actually, Whitney Information Network, Inc. pretty much admits that on page 32 of their 2004 annual report where they say,
“From time to time, Mr. Whitney benefits from our students' purchase of residential lots and the construction of homes on lots they acquire in the Cape Coral, Florida area. Lots purchased by students may be sold to them by Mr. Whitney or other lot owners. The purchase price of lots sold by Mr. Whitney is consistent with lot prices sold by others in the Cape Coral area. Mr. Whitney receives a salary from Gulfstream Development Corp. Mr. Whitney owns 25% of the stock of Gulf Stream. Mr. Whitney personally benefits from these transactions. We receive $1,000 for every Gulfstream home sold. This amounted to $282,000 in 2004. As we are not in the business of selling land and constructing homes, Mr. Whitney is not prevented from revenue opportunities with his personal activities. We have elected not to enter into the business of selling lots to students or building homes for them, as we do not believe the returns in doing so would match our returns in the post-secondary education business.”
My understanding was that he did this in both Costa Rica and Cape Coral, not just Cape Coral. So they now receive $1,000 from the sale of every Gulfstream home? Doesn’t that require a real estate brokerage license? Do they have one?
And they say they do not want to be in real estate. Excuse me. If you are helping to sell 282 houses a year and getting $282,000 for doing so, you ARE in real estate.
And how about their “electing” not to sell lots or homes because the returns would not be as good as selling seminars. Finally, they admit it. Of course, it raises the question of why Whitney Information Network, Inc. has such a dumb chief executive officer, namely Russ Whitney. If the corporation can see that the returns are better in seminars than in real estate, why can’t Russ see the same thing?
Of course, you may want to think twice before believing the opinion of a corporation that is losing $30 million a year on where to get the best return. Actually, I suspect Russ is the one doing OK. I’ll bet he didn’t lose no $30 million in any private corporation he owns. It’s Russ’s public corporation that seems clueless about how to earn a positive return.
Why doesn’t Whitney sell his lots to local people instead of to Whitney Information Network, Inc. students from out of town or out of state? Same question regarding his Costa Rica properties. I mean if the prices are really “…consistent with lot prices sold by others in the Cape Coral area,” as the annual report claims, why bother with conflict-of-interest sales to students?
I have heard, and one would suspect, that the only reason to sell to the out-of-towners is that they will be ignorant of local property values and overpay for the properties. A speaker at a mainstream real estate convention I attended once said that many people were calling him with properties for his “foreign” buyers. “You mean they’re 20% overpriced?” was his reply. I note that the annual report says the lot prices were “consistent with lot prices sold by others in the Cape Coral area.”
When you deal with Russ, you need to read every single word carefully when he says something in an under-oath situation or penalty-of-felony-conviction situation which is the case when he signs the annual report. The phrase that he should have used was that the prices were “fair market value” or the same as recent, comparable lots sales in the area. “Consistent with other lots” may only mean that they are the same prices that other, better lots sold for. It does not rule out that they were above market or above comparable lot prices. Selling lots for above-market prices would possibly violate laws depending on the details of how it was done and where.
It would violate the ethical code that I recommend: Tell the truth. Keep your promises. Treat others as you want to be treated. A publicly-traded corporation should not be doing such things—even for $1,000 a pop. Neither should Russ for that matter. I do not know for sure that he is, but the sale of real estate to persons brought from out of town by a teacher to his students is fishy.
I have received a couple of emails that said the properties Whitney sells to seminar attendees are, indeed, overpriced. There is a federal law designed to try to stop that. It applies to sales in the U.S. and in other countries if the properties are sold to U.S. residents: the Interstate Land Sales Full Disclosure Act. I have been trying to find out if that law applies to Whitney’s sales—and if he is complying. Now, it would appear that Whitney Information Network, Inc. may need to comply with that law since they are marketing to get the students to come to Florida and Costa Rica and participating in the sale proceeds.
Not a ‘free vacation’
Most people have probably received offers of a “free vacation.” The deal is you have to go to some resort area like Lake Tahoe, Vegas, or the Pocono Mountains in Pennsylvania. The only catch is you have to agree to listen to a sales pitch during your stay. The sales pitch is for condos or home lots or some such. Typically you listen to some high-priced salesman in a meeting room, then you ride around in vans looking at the actual properties while a two-way radio crackles with fake messages indicating that lots are selling like hotcakes. I do not know exactly how Whitney sells real estate to seminar attendees, but I heard they get into vans and ride around looking at properties. If they now only have 3 students, maybe they’ve switched from a van to a Volkswagen bug.
Isn’t it amazing that the other guys who do that have to give “free vacations” to get the pigeons to come to the area in question? Whitney has managed to get the people who buy his lots to pay for the privilege of listening to his sales pitch and riding around in the vans. Not only do they pay their own travel, lodging, and meal expenses, they actually pay tuition for the privilege of listening to a vacation condo/lot/home sales pitch and riding around looking at the properties with the sales people!
Eskimos who buy ice
You’ve heard of the salesman who was so good he could sell ice to the Eskimos? You may be thinking that Russ Whitney is such a salesman. Maybe. But there is another side to it. It’s like the question of what makes great college football teams: coaching or recruiting?
It’s both. In Whitney’s case, think about it. First, he runs TV infomercials and newspaper ads to get people to come to his free seminar. Most people are not dumb enough to fall for that. They figure, “If it sounds too good to be true, it’s not true,” and stay home.
Then, at the free seminar, about 80% of the audience is turned off by the high-pressure, fast talking, and refusal to answer questions. Only the dumbest 20% go to the back of the room and sign up for the paid seminar.
Then, only the dumbest people at the regional paid seminar are dumb enough to sign up for the more expensive “Millionaire University” in Cape Coral, FL—a “university” run by a guy who claims to be a high-school dropout.
And finally, only the dumbest of those who go to “Millionaire University” buy real estate from Russ. The annual report says there were 282 such people in Cape Coral in 2004.
So the Whitney students to whom the real estate is sold in Cape Coral and Costa Rica are the dumbest of the dumbest of the dumbest of the dumbest. Dumb to the fourth power. Dumb squared squared.
It’s like survival of the unfittest. These are people who, if they were Eskimos, would buy ice from the salesman. In other words, you move the most ice when you combine both a great salesman and Eskimos who are dumb enough to buy it. That is what Russ Whitney and his corporation are all about.
Actually, dumb is not the word. It’s more like gullible or extremely susceptible to high-pressure sales tactics or missing the gene that enables most people to recognize when someone is blowing sunshine up their a__. Whatever the specific diagnosis, Russ Whitney’s skill is knowing how to separate those weak ones from the rest of the “herd.” A fool and his money are soon parted so there is a lot of money to be made in fool finding.
Whitney’s age again
A couple of annual reports back, I noted that they had Whitney’s age wrong. They said he was two or three years younger than he really was. I made a snide remark about the SEC, which often makes companies restate their earnings, making him restate his age. At their now defunct “rebuttal” Web site, Whitney complained that I was making a big deal out of a little typo sort of mistake.
Well, guess what. That same typo is back. It always seems to say he’s younger than he is. They never make the mistake in the other direction—listing him as older than he really is. The 2004 annual report, which came out April 15, 2005 and has Russ Whitney’s signature, says he is 48. He’s 49. He was born November 18, 1955. He’ll be 50 this November.
Is this the world’s biggest deal? No. But somebody needs to explain to the guy that getting plastic surgery and capped teeth may make many people who merely see you believe you are younger than you really are, but it does not entitle you to lie about your age on a federal document—repeatedly.
Texas Proprietary School
I check every annual report to see if Whitney Information Network, Inc. is still a certified Texas Proprietary School. The 2004 annual report again says they are. See my article on what it takes to be a certified Texas Proprietary School. Section 897.32 (a) of the Rules says Whitney must provide a balance sheet and that balance sheet must reflect “(1) positive equity or net worth balance.” Since their balance sheet gets deeper in the red every year, I cannot figure out how they continue to be certified by Texas.
In a “rebuttal” Web site that has since been taken down, Whitney said something about posting a bond with the state of Texas in lieu of having a positive net worth. Who would give Whitney Information Network a bond? Apparently they pledged certificates of deposit to get the bond. In other words, the bond company does not have to trust Whitney Information Network, Inc. because its cash is already pledged to them if Whitney owes money to Texans.
Is the bond big enough?
I wonder if the bond is big enough. The annual report says they have only $1.5 million in letters of credit for merchant accounts and “certain state bonding requirements.” $1.5 million is only one percent of Whitney Information Network’s annual sales. That means they rack up about that much merchant-card sales in about 1% x 365 days per year = 3.65 or less than four days.
Texas is the second most populous state in the U.S with 21 million people. The total U.S. population is about 300 million so Texas is about 7% of the U.S. population. That suggests Texans also represent 7% of Whitney Information Network’s sales. Those sales were $140 million in 2004. So it would appear that 7% of that $140 million or 7% x $140 = $9.8 million of Texans’ money per year is in the hands of Whitney Information Network. If the company goes belly up, are $1.5 million worth of letters of credit and bond going to be enough to cover all the losses of both the credit-card companies and the Texans owed the $9.8 million?
Run out of cash?
If you understand arithmetic, you may wonder how much longer Whitney’s corporation can keep losing money and cash. Good question.
They went from $15 million in cash in June of 2004 to $6,848,000 at the end of the year. That means $15 million - $6.8 million = $8.2 million drained out of the company in six months. If that rate of cash decline continues, they would hit zero cash around June 1, 2005.
Will that happen? Not necessarily. They may be able to do things to slow or reverse the rate of cash loss. For example, in 2004, they laid off 15% of their work force. There is also that promise of the big shots to take pay cuts.
But cutting expenses is not so simple. Sometimes cutting expenses also results in a drop in cash flow. Stated simply, cutting “fat” makes cash flow better. But cutting “bone” makes it worse. Telling which is which is very hard. Also, there comes a point when there is no “fat” left. After they laid off 15% of their work force, Whitney’s company sort of said that those laid off were “fat,” but did not admit to having any more “fat” left. If there is no “fat” left, your ability to improve cash flow by cutting payroll is ended.
Pay cuts of executives are another tricky business. If the executive in question is hot stuff, a pay cut may cause him to quit and go elsewhere. That would probably make cash flow worse. Logic suggests that only executives who were being overpaid to begin with would accept a pay cut and stay. Russ appears to be staying.
John T. Reed
Copyright 2005 by John T. Reed
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John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, Email: johnreed@johntreed.com

CONSUMER WARNING NOTICE: I recently saw Russ Whitney on a late night TV infomercial and then attended one of his "free" seminars. Unfortunately I believed all of their LIES and FRAUDULENT CLAIMS and I paid thousands of dollars to go to his "training camps". Needless to say I was clearly ripped off, cheated and lied to by Russ Whitney and his employees (band of thieves). My mistake was not searching the Internet to find out more about Russ Whitney and his company's HORRIBLE reputation for fraud, deception and illegal activities. Had I searched online I would have found out about THOUSANDS of customers being cheated, HUNDREDS of investigations by the Attorney General into the fraud of Russ Whitney and his company's, and that Russ Whitney himself is a CONVICTED VIOLENT FELON and spent years in PRISON. I saved the cached pages from the major search engines of the John Reed lawsuit with Russell Whitney and the TRUTH and FACTS that Reed discovered during his investigation of Whitney. I am posting this information on real estate discussion boards so other people do NOT get cheated and ripped off like I did.