By Dr. James M. Dahle, WCI Founder
There are a lot of financial gurus and talking heads out there. It sure would be easier to interpret their advice if there were a running banner along the bottom of the screen showing their own investments, their past investment performance, and their net worth. It'd be even more interesting if they had to reveal past crimes, schemes, scams, complaints, and bankruptcies. It certainly would make us all a lot more skeptical of their advice.
A surprisingly high number of financial gurus, particularly in the real estate space, have gone bankrupt at some point or another. Sometimes it is a business bankruptcy and sometimes it is a personal bankruptcy, but I find it amazing how many of them wear it as a badge of honor. Personally, I'm far more proud that I haven't gone bankrupt, and I actually prefer taking advice from others who have also not gone bankrupt. That's not to say you can't learn from someone who has gone bankrupt, but it does make me a little more skeptical about their advice, especially if they advocate for a lot of leverage.
Today, we're going to discuss some of the more well-known gurus out there and their experiences with bankruptcy and other legal troubles.
Dave Ramsey is not shy about discussing his bankruptcy and what he learned from it (he's certainly swung from being a big fan of leverage to being one of the most anti-debt folks on the planet). If anything, maybe he learned his lesson a little too well.
By 1986, Dave Ramsey was 26 years old, and he had amassed a $4 million real estate portfolio, no small sum at that time. However, he had seven figures of debt—which was recalled after some banks changed ownership—and by 1988, he had declared bankruptcy. As I recall, he did eventually pay all of his creditors back, thanks to his future success.
While best known as the 45th president, Donald Trump has often been considered a financial guru, having published books such as The Art of the Deal, How to Get Rich, and The Art of the Comeback (which seems particularly appropriate given today's subject). While he has never declared personal bankruptcy, his businesses (primarily casinos in Atlantic City and hotels in New York) have declared bankruptcy six times. Trump University, a for-profit seminar series, also ran into legal trouble and settled with students for $25 million. The Donald J. Trump Foundation is also in legal hot water in New York, having been accused of self-dealing and possible tax evasion.
More concerning to me than his bankruptcies is his attitude toward them, exemplified best by this quote:
“I’m the king of debt. I’m great with debt. Nobody knows debt better than me . . . I’ve made a fortune by using debt, and if things don’t work out, I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”
I'm not sure our former president is the best source from which to take advice on debt.
Perhaps it shouldn't be surprising to learn that Kiyosaki and Trump once wrote a couple of books together: Why We Want You to Be Rich and Midas Touch. What do both men have in common? Well, they've both declared bankruptcy for their companies. Kiyosaki's company Rich Global LLC declared bankruptcy in 2012. He also reported in an interview with CNN that two of his early companies also went bankrupt, although there is little documentation of that. It's just like most of the early life he wrote about in Rich Dad, Poor Dad, which has holes in it big enough to drive a truck through.
Other legal trouble includes the Ohio Division of Real Estate and Professional Licensing issuing a statement warning people against the methods he taught and numerous exposes on his seminars (the first one was free, the second one was $495, and the third one was $45,000 at one point.) Allan Roth's write-up of his experience at a seminar was particularly enlightening.
The Kiyosaki-style seminar has been used for decades by real estate gurus. Lots of hype, lots of leverage, not too many specifics, and amazingly high fees. In recent years, business coaching has seen similarly high charges and methods, often into the six-figure or even seven-figure range. I'm all for coaching, but when your coach costs more than your accountant, attorney, physician, therapist, and financial advisor combined, you've got to start wondering about the price. At any rate, these real estate gurus used to just have in-person seminars sold by their books but now mostly are YouTube personalities with online courses and occasional in-person seminars. Real estate investing simply isn't that complicated.
Many of the remaining people on this list are also real estate gurus from past decades who subsequently got into trouble. How many of those now teaching similar things on YouTube will have a similar legal record in a few more years?
Robert G. Allen
Robert Allen, who lived not too far from me in Utah, was most famous for his books, Nothing Down and Multiple Streams of Income. He's still all over YouTube, and in recent years, he's still been called “a true legend in real estate.” He declared bankruptcy in 1996 (maybe he should have put a little more down). The IRS and the Utah State Tax Commission have also come after him, as have speakers at his seminars that he apparently never paid. He blamed the bankruptcy on an avalanche destroying his home, which makes you wonder why a real estate guru wouldn't insure his own home and why so much of his net worth would be in that home. The list of creditors in the bankruptcy is somewhat revealing and casts some doubt on the avalanche story:
- Bank of New York
- Citibank Visa
- Farmers Insurance Group (San Diego)
- Ferrette & Slater (San Diego)
- Franchise Tax Board (California income tax)
- Internal Revenue Service
- John Graff (Highland, UT)
- Mark IV Properties (San Diego)
- McKay, Burton, & Thurman (Salt Lake City)
- Neiman Marcus
- Scalley & Reading APC (Salt Lake City)
- Scott Meredith Agency (New York City)
- Shirl and Gail Loveless (Provo, UT)
- Simon & Schuster (New York City)
- The Broadway (Phoenix)
Apparently, he needed more streams of income and fewer streams of outgo.
How about Wade Cook, author of How to Build a Real Estate Money Machine? He declared bankruptcy in 1987 and again in 2003. I guess he didn't learn the first time. He also subsequently was convicted of tax evasion and sentenced to 88 months in prison.
Ray Lucia was a financial planner, author, radio, and TV host. He lost his license, and he was fined hundreds of thousands of dollars by the SEC due to “misleading claims” about the “Buckets of Money” strategy he was touting at his seminars. That was all tied up in appeals and retrials, and it was eventually settled. He didn't go bankrupt, though, so he's got that going for him.
Ray actually wrote in the comments section shortly after this article was published, providing “the rest of the story.” I think I side with Ray here, but he still qualifies as a financial guru who was subsequently financially ruined, just not for the same reason as a lot of the other folks on this list.
Dave Del Dotto
Author of the Cash Flow System course, he filed for bankruptcy in 1987. He also had Federal Trade Commission charges/fines against him.
Author of Wealth Without Risk, he was successfully sued by a client for giving bad advice and eventually declared bankruptcy.
You probably know Carl from his The Behavior Gap sketches and the book of the same name. I actually consider him one of the good guys out there, and as far as I know, he has never declared bankruptcy or been accused of anything illegal. But he did end up short-selling his Las Vegas home during the Great Recession. That always looks bad when you're a financial planner with financial troubles. Like Dave Ramsey, he never tried to hide it and seems to have learned his lesson from it. He even wrote the whole thing up in the New York Times. I had a residency classmate who bought a nice condo in Las Vegas in 2006 (against my warning, I might add), so I had a front-row seat to the particular meltdown that Carl was caught in. It can be said that “time heals all wounds in real estate,” but that's only if you can cover the mortgage in the meantime. My classmate could. Carl couldn't. Beware big mortgages.
Mark O. Haroldsen
The author of How to Awaken the Financial Genius Within You, Haroldsen was another Utahn who was charged with more than 80 counts of fraudulent sales practices. He declared bankruptcy in 1997.
The star of the cable TV show Million Dollar Secrets, Beckley declared bankruptcy in 1987 (that was a particularly bad year for gurus). He also went to federal prison for wire fraud.
Sonny was the author of Inside Real Estate and was indicted in 1995 for fraud. Maybe he was innocent, but he died before we found out.
This baseball-player-turned-TV-financial-personality went bankrupt from a foreclosure of a home purchased at the height of the housing bubble. Oops.
Famous for running the largest Ponzi scheme in history, he was sentenced to 150 years in prison. Naturally, he went bankrupt from that. He died in prison at 82 in 2021, just 12 years after being sentenced.
Yet another Utahn on this list (you sure you want to read my blog?), Mr. Ruff was famous in the 1970s for his doom and gloom prophecies. He was called “The Prophet of Doom” and published a newsletter called “Ruff Times.” I'm sure you've heard similar gurus who advise people to build portfolios of gold, bullets, and canned goods. He wrote books like Famine and Survival in America, How to Prosper During the Coming Bad Years in the 21st Century, Survive and Win in the Inflationary Eighties, and Making Money. At first glance, you may not think he belongs on this list. The company he founded declared bankruptcy, but it appears it was after he sold it. He was also the CEO of another company engaged in fraudulent practices that subsequently went bankrupt but only for a week. He maintains he was fired because he was honest about what was happening.
However, earlier in life he did declare bankruptcy after spending too much on a newspaper insert. He describes it in his autobiography:
As the money was rolling it, we spent it. We gave money to the Oakland Symphony, and I bought Kay a $1,000 designer dress, so that when we had our picture on the society page at post-concert receptions, she would look great.
However, I was making the biggest mistake of my life to that date (although bigger mistakes would come later). Because I thought the gravy train would last forever, we didn’t bother to accumulate any savings or cash reserves. We had good credit and used it. We spent our money as if there were no tomorrow, or, to be more accurate, I did. Kay expressed her concerns, which I discounted because I thought I knew better.
Then disaster struck. I had planned an eight-page advertising supplement to go into all of the Bay Area newspapers one Sunday. On Friday night, a wildcat strike hit all the Bay Area papers, and the Sunday paper was never published. I had spent $25,000 printing that supplement, which at the time seemed like all the money in the world. We couldn’t just keep the inserts and use them at a later time because they were all geared toward specific demonstration meetings on specific dates at specific places all over the Bay Area.
I was in deep trouble. I didn’t have any cash reserves, accounts payable began to pile up, we were up to our ears in hock and personal debt, and I was in arrears with my royalties. Finally, the parent company, seeing an opportunity to grab off the business and resell it to someone else, abruptly cancelled my franchise and notified the sheriff. My doors were locked, and I was out of business. I went to work rich (I thought) and came home broke. It ruined my whole day.
This forced me into bankruptcy, but Kay and I, prompted by some ethical counseling by local church leaders, decided that even though we had filed bankruptcy, legally discharging half-a-million dollars in debt, we would not be right with our creditors and the Lord if we didn’t someday pay it off. So I made perhaps the most important decision of my life—I would eventually pay off those debts. This meant I couldn’t just get a J.O.B.; I had to become rich—again.
It seems he did. I believe he died a multi-millionaire.
Craig authored Craig Hall’s Book of Real Estate Investing and then declared bankruptcy in 1992. At one point, he had a $4 billion real estate portfolio.
Albert wrote How You Can Become Financially Independent by Investing in Real Estate and then declared bankruptcy in 1987. He ran lots of get-rich-quick seminars. He had a net worth of $30 million at one point.
Tony ran “no-money-down” get-rich-quick seminars. The company, National Superstar, went bankrupt in 1986. His book was How to Negotiate Successfully in Real Estate.
Dave wrote The Monopoly Game and then went bankrupt in 1987.
What lessons can we learn from all of the above examples? I think there are four.
#1 Nobody Goes Bankrupt Without Debt
Perhaps the most important lesson one can learn about bankruptcy is that debt is a necessary component. Lots of people (and gurus) make fun of us debt-free people, showing us how much more money we would have if we invested in stocks (or better yet in leveraged real estate or cryptocurrency) rather than paying off our student loans or mortgages. Guess what? We may not end up with the largest trailer behind our hearse, but we won't go bankrupt, get foreclosed on, or have to short-sale a house either. Nobody else is going to be hurt financially by our failure to pay the money we said we would pay.
#2 Bankruptcy May Not Be a Moral Failing, But It Isn't Any Fun
Bad things happen to people, and many bankruptcies are caused by unforeseen events rather than living too high on the hog. For example, medical debt is one of the leading causes of bankruptcy. Not only are the medical bills expensive, but you also lose your ability to earn money due to your illness or injury. However, even if bankruptcy isn't your fault or even if it's not some sort of moral failing, it is a big, expensive, painful hassle that should probably be avoided whenever possible. You should also certainly learn your lesson from these catastrophic financial events, like Dave Ramsey and Carl Richards seem to have done.
#3 Remember You Have Not Yet Heard the Entire Story
This is critical to remember when you are watching YouTube videos, hearing talks at conferences, reading blogs, or following people on social media. You've only heard the beginning of the story. You've only heard about how that doctor put 24 doors under management in the last year. You have not yet heard how that doc lost all of those doors, their home, and their pride in a real estate crash five years from now because they were over-leveraged. Beware the cocktail party braggart. Gray hair is worth a lot in medicine and in finance.
#4 Take What You Find Useful, Leave the Rest
There is probably something you can learn from all of the gurus above. Just because their personal financial lives went down some wayward paths does not mean you have to throw out all you learned. It just means you need to be careful not to latch on to any guru and follow them like a prophet leading you through the wilderness. Take what you find useful and leave the rest. That goes for everything I write and say, too. Don't be that person who says, “I used to like most of what WCI says, but he's totally wrong on Bitcoin so I'm not going to make a written financial plan or refinance my student loans after all.” As you take the best from every author, blogger, and talking head, you'll learn to think for yourself.
What do you think? Did I miss any gurus who went bankrupt? What lessons do you take from the examples above? Comment below!