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Russ Whitney tried to get $6 million from indivdual Wall Street investors by John T. Reed On February 12, 2003, convicted robber Russ Whitney filed papers seeking to sell one million shares of stock in his Whitney information Network, Inc. He hoped to get $5 to $6 million from individual Wall Street investors. (Institutional investors would not invest in Whitney' company because they never buy Over The Counter Bulletin Board"”"pink sheet""”stocks.) Are convicted felons allowed to head public companies? Russ Whitney owns the majority of the stock of Whitney Information Network, Inc. and heads the company. He was convicted of second degree robbery and served 19 months in New York state prison for that crime. Now he wants Wall Street to trust him with $5 or $6 million of their money. That seems unusual to say the least. Disclosure of "material" facts Documents that are required to be filed with the Securities and Exchange Commission must disclose all "material" facts. This is required by the Securities Exchange Act of 1934 Section 10(b). Is it material to prospective stock buyers that the Chief Executive Officer and Chairman of the Board of the corporation was once convicted of stealing? I would have thought so. Apparently Whitney and his advisors do not think his robbery conviction is material because I find no mention of it anywhere in his S.E.C. documents, which you can read at the SEC' EDGAR Web site. (Whitney Information Network' CIK number is 0001095276. You may need that to search for the documents he has filed at the EDGAR Web site.) In addition to selling the $5 or $6 million of securities, Whitney also wants to move up from the "pink sheets" to NASDAQ SmallCap status. This would enable him to sell even larger amounts of stocks and bonds in the future. Again, I wonder if the people who decide whether Whitney gets NASDAQ SmallCap status care about his felony conviction, and whether they know about it. I am not an expert on securities law. I encourage anyone who is to contact me. Am I not a "material fact?" What about me? How come Whitney' offering documents do not list me as a "material fact?" Seems to me that Whitney Information Network, Inc. is obligated to tell shareholders and prospective stock buyers about me. That' not a manifestation of my ego. It' based on all the garbage Whitney says about me in his lawsuit papers. S.E.C. documents are supposed to tell about anything that might affect the company. For example, on page 7 of Whitney Form S-1 they discuss "Risk Factors." One they cite is, "Many states regulate the marketing and sale of proprietary educational courses, including the content of advertisements to attract students. Failure to comply with these regulations could result in legal action innstituted by the states, including cease and desist and injunction actions. In the event we are subject to such legal action, our reputation would be harmed and the demand for our course offerings could be significantly reduced." They know a little about failing to comply with state laws. They have been in exactly this kind of trouble with a number of state attorney generals and other government agencies. See my WhitneyMI.html and WhitneyPA.html and WhitneyTN.html articles. But why are they discloing a possible, future harm to their reputation (and not mentioning their past difficulties in this area), but not mentioning me when their lawsuit papers claim that I have already severely damaged their reputation and business and am contiunuing to do so? Listen to the actual words Whitney' attorneys put in their various legal papers against me. [Emphasis added] Louis R. Gigliotti"”Whitney' first attorney writing in the initial complaint in the Fort Myers federal court '¶10 [Reed] has diverted Internet traffic from [Whitney and Whitney Information Network, Inc.]' Web site"¦Such diversion has resulted in, and continues to result in, substantial harm to [Whitney and Whitney Information Network, Inc.]"¦ '¶27 [Reed]' aforesaid acts have harmed [Whitney and Whitney Information Network, Inc.]' reputation, severely damaged [Whitney and Whitney Information Network, Inc.]' goodwill"¦ '¶28 [Reed]' aforesaid acts have caused and will cause great and irreparable injury to [Whitney and Whitney Information Network, Inc.], and, unless such acts are restrained by this Court"¦[Whitney and Whitney Information

Network, Inc.] will continue to suffer great and irreparable injury. '¶44 [Reed]' aforesaid acts have caused and will cause great and irreparable injury to [Whitney and Whitney Information Network, Inc.], and, unless such acts are restrained by this Court"¦[Whitney and Whitney Information Network, Inc.] will continue to suffer great and irreparable injury. '¶72 As a direct and proximate result of [Reed] publishing libelous statements"¦[Whitney and his corporation] have suffered damages, and [Reed] has damaged [Whitney]' business reputation"¦ If all the above nonsense Gigliotti said about me is true, then it ought to be in the S.E.C. filings. Omitting a "material fact" from an S.E.C. filing is a felony (18 USC 1001 concealing a material fact in a federal matter"”the law that Martha Stewart was convicted under) Here' some more of the same from Whitney' second law firm, Rothstein, Rosenfeldt, Dolin, & Pancier, P.A.. In particular, this was signed by Christina M. Kitterman an associate with that law firm. [Emphasis added] Christina M. Kitterman"”Associate in Whitney' second law firm writing in an Emergency Motion for Preliminary Injunction filed in Broward County, FL court p. 3 [Whitney and Whitney Information Network, Inc.] have lost, and contiune to lose, substantial profits. p. 3 "¦many of [Whitney and Whitney Information Network, Inc.]' prospective students who access [Reed'] web site and view this scandalous information, refrain from purchasing [Whitney and Whitney Information Network, Inc.]' services, notwithstanding a clear intent to do so prior to accessing the web site p. 4 "¦harmed [Whitney and Whitney Information Network, Inc.]' reputation, severely damaged [Whitney and Whitney Information Network, Inc.]' goodwill, and have diverted an undeterminable amount of sales from [Whitney and Whitney Information Network, Inc.] p. 7 [Whitney and Whitney Information Network, Inc.] are consistently losing an immeasurable number of of customers and an undeterminable amount of money p. 7 "¦countless numbers of customers are lost"¦resulting loss of goodwill and reputation"¦constantly harmed p. 8 "¦[Whitney and Whitney Information Network, Inc.] will continue to suffer an insurmountable amount of damages"¦ p. 9 The threatened injuries to [Whitney and Whitney Information Network, Inc.]' goodwill, business and reputation outweigh any harm an injunction would do to [Reed] [Shutting down my entire Web site, which is what the injunction seeks, would reduce my income to zero] Scott Rothstein email to John T. Reed on May 29, 2003 "You have already cost the company millions of dollars"¦" Once again, they need to either add me to their S.E.C. filings or admit it' bull and withdraw it from the court papers. They can"t have it both ways. They can"t talk out of both sides of their mouths. Form S-1 The SEC form Whitney filed on 2/12/03 is called a Form S-1. It is a registration statement that corporations must file when they are about to offer securities to the public, as Whitney is. You can see Whitney' S-1 at the EDGAR Web site. It is a very detailed description of the corporation' affairs. In fact, if you are not used to reading them, you will be surprised at the detail and that it gives out all sorts of information you would have thought was private like Russ Whitney' salary, how much rent he gets from the corporation for a building he leases to them, and so forth. It also gives so much information about the internal workings of the corporation you might think it was giving away business secrets. "Working capital" Finance is a business where trust is extraordinarily important. Whitney has been in the finance business since his first big finance deal"”borrowing $11,000 against his home in June of 1978. Prospective investors in Whitney' current stock offering would not take much comfort from his first financing. It looks suspicious to me. He apparently told the bank he needed $4,000 to install aluminum siding on the house, asking them to refinance up to $18,000, thereby letting him pay off the $14,000 first mortgage. But he also got the previous owner to kick back $7,000 of proceeds of paying off the $14,000 first that the previous owner had taken back when he sold the property to Whitney. And he got the previous owner to take back a second mortgage for another $7,000. Apparently, the bank was not told of the seller kicking back $7,000 of the new first to Whitney nor of the seller getting a second that placed more mortgages on the property than it was worth. To top it off, it appears that he did not even put the aluminum siding on the propery. Whitney says he, "walked away"¦with $11,000 in tax-free cash." I thought the aluminum-siding guy was supposed to walk away with $4,000 of it. (At a recent Web site, Whitney says he got the siding and paid the contractor te $4,000. Fine. Then correct the false information in the book about "walking away with $11,000") Telling a lender that you are going to use money for specified improvements, then not doing it, especially when you never intended to in the first place, is a felony. Whether Whitney did precisely that in this deal, I cannot say for sure. I would need the loan application documents and to talk to the loan officers. But that' what it sounds like reading his own book Building Wealth. You can read about this and many other similar transactions at my Web articles John T. Reed' review of Russ Whitney' book Building Wealth and Are Russ Whitney' property improvement loan techniques illegal? The fact is Whitney repeatedly brags in his books about obtaining "working captial" and "seed capital" by misleading lenders as to the cost of planned improvements as well as "sneaky seconds" and other types of junior financing that also appear to have been concealed from the banks. Concealing a material fact is a felony. It violates 18 USC 1001. In fact, the very same law applies to both leaving material facts out of loan applications and out of S.E.C. filings and statements like Martha Stewart made to federal investigators. In one case, Whitney relates a story about a banker catching him lying and suggesting he say the purpose of the loan was one of the purposes he now says is why he seeks $6 million from Wall Street investors. On page 126 of Whitney' book Overcoming the Hurdles and Pitfalls of Financing, Locating, and Analyzing of Real Estate he says, "As you grow and establish yourself with several re-payments of these types of debts, you will then not need to play this type of game [lying to lenders]. For example, I first realized that I was a valued customer when I called a banker for a five-thousand dollar signature loan. He asked what I needed it for and I gave him the old pay some bills story. He said, "Why don"t we just call it working capital." I didn"t succumb to the ploy, I just told him (nicely, of course) to call it anything he wished and I would have him paid off in ninety days. Now there are no more games"¦" [Emphasis added] So here we are some twenty years later and Russ Whitney is going to Wall Street for millions. His offering documents (page 7 of the Form S-1) answer the question, "What do you need it for?" "Expansion of our international markets; marketing expenses associated with our reference materials and on-line courses; development or acquisition of accredited or licensed proprietaary schools and working capital." [Emphasis added] ""¦You must be a little deceptive with your banker." The fraudulent nature of what Whitney advocates in the world of finance, and claims to have done, is starkly evident on pages 125 and 126 of his book Overcoming the Hazards and Pitfalls of Financing, Locating, and Analyzing of Real Estate. "I must share some other realities with you"¦There are many instances where you must be a little deceptive with your banker." He was talking about a banker who makes loans, but if I were his investment banker (the guy who helps him sell stock to the public), this sort of attitude and past history would not comfort me. Ditto if I were a prospective investor. "They don"t need to know that"¦" Another disturbing attitude and habit of Whitney regarding financiers is his propensity to decide that a lender or partner "does not need to know" something. Invariably, the item in question is something that if the lender or partner knew about it, they would not make the loan or become Whitney' partner. Here are some examples taken from Whitney' own books. The first one is a reprint of what I said in part at my Web page about Whitney" "overfinancing" techniques. Whitney' words are in red. On page 75 of Overcoming the Hurdles and Pitfalls of Investing in Real Estate, Whitney says, regarding a deal where he is putting a third mortgage on the property right after the bank second, ""¦you"ll note on the "Projected Rent Role [sic]" statement there is no mention of a third mortgage. Is that dishonest? No!" Yes, it is. It is concealing a material fact in a federal matter. It is a felony punishable by a fine and/or five years in prison or both. Whitney goes on, "It is not the bank' business if we have a third mortgage." Who is Russ Whitney to make this determination? The money that is being loaned belongs to the bank' depositors and shareholders. Ultimately, the taxpayers" money is at risk. If you cannot tell the truth, the whole truth, and nothing but the truth to the lender, then you are behaving unethically and probably illegally. Whitey continues, "As long as their money is protected in the second mortgage position the bank' loan is safe." The fact is a third mortgage makes the loan far more risky than the second mortgage they think they are getting. The main cause of foreclosure is lack of borrower equity. A third mortgage reduces or eliminates borrower equity. That, in turn, reduces the borrower' incentive to keep the payments current in the case of difficulty with this property or another or financial difficulty in any other aspect of the borrower' life. Whitney would not know that because he was never a lender and apparently never studied sound lending practices. Whitney: "I just want you to understand that business is business." What does that mean? Nothing. The fact is page 75 of Overcoming"¦ is Russ Whitney' tortured attempt to rationalize mortgage fraud. I left out more of the same on that page. Whitney knows what would happen if he told the whole truth. Continuing on page 75, he says, "If I approached the banker and told him I bought the Spanish mansion for $90,000 with no money down and I need to borrow $15,000 to boot, what do you think my chances would be for a loan? Exactly, zero. This is a chess game. A battle of brains and wits." So there' the proof of intent. Whitney knows if he tells the whole truth, he won"t get the loan. So he tells less than the whole truth"”maybe lies depending on the wording of the loan application and/or discussions with the lender. The "chess game" comment is more rationalization. In games like chess, you sometimes feint and bluff. But borrowing thousands of dollars from a federal lender is not a game of any sort. It is a transaction where the stakeholders on one side"”the bank' owners and depositors and the U.S. taxpayers"”entrust the person on the other side"”Russ Whitney"”with a substantial amount of their money. Applying for a loan is not a "battle of brains and wits." Defrauding lenders is a battle of brains and wits. "We did what has to be done to expedite it and make them feel good about lending the money." In other words, we defrauded the lender. "Expedite" is a wholly inappropriate euphemism. It means to speed up. In this case, as he admitted earlier, he would have been stopped cold had he told the whole truth, not just slowed down. So stock market investors should wonder whether Whitney' Form S-1, Prospectus, and other S.E.C. documents also involve Whitney doing, "what has to be done to expedite it and make investors feel good about buying the stock" and deciding what investors "don"t need to know." As I said above, you can go to jail for failure to disclose a material fact in either a loan application or SEC filings. The same law applies to both: 18 USC 1001. Fidelity insurance and bonds Owners and directors insurance is almost ubiquitous and they generally will not insure for fidelity or bond a director who has been convicted of a felony involving stealing money. Asset protection Russ Whitney is big on asset protection. At least one of the seminars he sells is about asset protection. He apparently practices what his instructor preaches because one finds few properties with his name on them in Lee County, Florida where he claims to be a big real estate investor. Reportedly, he hides his assets using trusts, offshore entities, out-of-state corporations registered in states where they do not require the ownership of the corporation to be disclosed, and so forth. Is asset protection legal and ethical? I think not. What is its purpose? To hinder and delay creditors? Most would agree. But that is illegal. The actual crime is called fraudulent transfer in anticipation of bankruptcy which is defined as transferring assets to others for less than their fair market value prior to declaring bankruptcy. Also, Florida is one of the top states for asset protection because it is one of very few that allows you to go bankrupt yet keep your home regardless of how valuable it is. Asset protectors claim they are just doing it to protect themselves from "frivolous" lawsuits. Actually, "frivolous" lawsuits really don"t hurt you. Judgments are what hurts you. And by definition, none of those are frivolous because they were rendered by a judge or jury after a trial. And as any asset protector will be forced to admit, the various protection schemes make no distinction between "frivolous" and non-frivolous creditors. For example, Whitney hit a pedestrian in near Schenectady, New York. That was in 1980. In 1982, he moved to Florida"”that bankruptcy friendly state. In 1988, he weasled out of paying most of the $1.2 million judgment the pedestrian won against him by threaning to declare bankruptcy. So what does this asset protection stuff mean to possible investors in Whitney stock? Think about it. The CEO of Whitney Information Network, Inc. is a guy who believes in putting his assets where they are hard to find and hard to get at. And he is asking Wall Street investors to give him millions in this stock offering. The money is supposed to go into the corporation. But suppose it doesn"t? If the WIN, Inc. were to go bankrupt, how would shareholders, who become less than unsecured creditors in that case, find and seize any pertinent assets that Whitney had put in asset-protection schemes? In other words, it is a bit disquieting to be asked for millions, in a situation where you could end up standing in line behind his unsecured creditors, by a man who is a big advocate and practitioner of various ways of preventing creditors from finding or getting control of his assets. Copyright 2003, 2004 by John T. Reed Last update 4/17/04 John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, www.johntreed.com

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