In its various filings with the Securities and Exchange Commission, Russ Whitney’s company, Whitney Information Network, Inc. brags that its subsidiary Whitney Education Group, Inc. is a certified Texas Proprietary School.

I spoke to the Texas Workforce Commission, the agency that regulates proprietary schools in Texas, and confirmed that Whitney Education Group, Inc. is, indeed, licensed by them. Their directory of licensed schools including Whitney is at http://m06hostp.twc.state.tx.us/PECOSRPT/propschool.

Being a licensed Texas Proprietary School is governed by the Texas Proprietary School Act which is Chapter 132 of the Texas Education Code and by the Texas Proprietary School Rules.

So, is Whitney Education Group, Inc. complying with the law?

I think not.

How so?

Let me count the ways.

Mandatory disclosure to students

Section 132.055 (c) of the law says Whitney must provide the following information to each student before enrollment:

• course outline
• schedule of tuition, fees
• refund policy
• name, mailing address (101 East 15th Street, Austin, TX 78778-0001) and telephone number (512-463-222) of the Texas Workforce Commission for the purpose of directing complaints to the agency
• the current rate of job placement and employment of students issued a certificate of completion
• notification of the availability of a cost comparison with similar schools prepared by the Commission under Section 132.021(b) of the Act.

Does Whitney provide all that information? I am not sure, but my impression from talking to a bunch of his customers and former employees is that they probably do not. In addition, I have been asking readers of my Web site for such information for almost a year. Many have sent me other stuff. None has sent me such a packet.

Section 132.055 of the Act says Whitney must also publish its refund policy in their catalog and enrollment contract.

Rule 807.125 has a lengthy, detailed description of the catalog Whitney must provide to prospective students. I have never seen or heard of such a catalog. If anyone has one, I would appreciate their sending it to me. There is a six-page catalog in the back of Whitney’s new book Millionaire Real Estate Mentor. It does not comply with the Texas Proprietary School Rules.

Refunds

Refunds have been the bane of many a bad guru—the one thing that finally got them into trouble. See my guru rating page for examples. When your seminar is lousy, lots of people want refunds—so many that the gurus cannot afford to pay them.

Note that the law requires Whitney to give students a copy of its refund policy.

I have not seen the refund policy that Whitney gives to the students. But I have seen the one stated in his SEC filings. Virtually all of his SEC filings have the same statement. Here’s a quote from page 12 of the Form S-1 that Whitney Information Network, Inc. filed with the SEC on 2/12/03. You can see it at the SEC’s EDGAR Web site.

“Generally, students pay for the course in advance and the fees are non-refundable.”

That’s an easy-to-understand policy: No refunds.

That would seem to be corroborated by the Better Business Bureau report on Russ Whitney’s Whitney Information Network, Inc. They rate the company unsatisfactory due to unanswered complaints and that those complaints, “…concern requests for refunds not received that were cancelled during 3-day right to cancel.”

Is such a refund policy acceptable under the Texas Proprietary School Act?

Nope.

Here’s some of what the Act says:

132.061(a) “…each proprietary school must maintain a cancellation and settlement policy that must provide a full refund of monies paid by a student if: (1) the student cancels the enrollment agreement within 72 hours (until midnight of the third day excluding Saturdays, Sundays, and legal holidays) after the enrollment contract is signed by the prospective student…”

Reed note: A 72-hour rescission period is also a requirement of the Federal Trade Commission Act regulations (16 CFR 429).

132.061(b)(3) “if tuition and fees are collected in advance of entrance, and if, after expiration of the 72-hour cancellation privilege, the student does not enter the residence school [“residence school” is defined at 807.2 (20) of the Texas Proprietary School Rules as in-person classroom instruction as opposed to correspondence school], not more than $100 shall be retained by the school.

Roughly speaking, refunds for students who cancel during the course are generally to be prorated based on the ratio of the number of hours attended to the total number of hours in the course. See the rest of Texas Education Code 132.061 (b) and (g) for details.

How fast does Whitney have to pay the requested refunds? 60 days [TEC § 132.061(b)(7)].

Based on his own SEC filings, as well as the experience related by the Better Business Bureau and many complaints posted on the Internet and emailed or phoned to me, it would appear that Whitney has totally ignored the refund-policy requirements of the Texas Proprietary Schools Act.

What if you stayed for the whole course?

Suppose you stayed for the whole course and feel you were ripped off. Does the Texas Proprietary School Act say you cannot get a refund?

Good news. §132.061 (a)(2) says you can get a full refund if

“(2) the enrollment of the student was procured as the result of any misrepresentation in advertising, promotional materials of the school, or representations by the owner or representatives of the school.”

An argument could be made that every student who ever attended a Whitney seminar is entitled to a refund on that basis.

It is against the law for Whitney’s people to solicit you through a representative who is not yet registered with the sate, or solicit you before the school or individual course has been approved by the state. I will try to get and publish a list of the dates Whitney’s school was approved and the dates his various courses were approved. If they jumped the gun with you, you may be able to get a refund on that basis alone.

Misrepresentations

For example, Whitney’s ads and promotional materials generally tell what I call “The Legend of Russ Whitney,” namely, that he is a high-school dropout who owned “well over a million dollars worth of real estate at age 25 and was a one of America’s youngest self-made millionaires at age 27 and that he made his first fortune in real estate in upstate New York.” As far as I can tell, that’s all false. See my comparison of Whitney’s claims to my research, my article about his “first fortune,” and my review of his book Building Wealth.

If you need a document to prove misrepresentation, use the front and back covers of Building Wealth or his new book Millionaire Real Estate Mentor. They repeat these and other false statements there and at his Web site www.russwhitney.com. You may wonder if a book cover constitutes advertising. I think so. Plus, Texas defines advertising pretty broadly at 807.2(5) of their Proprietary School Rules: “Any affirmative act designed to call attention to a school or program for the purpose of encouraging enrollment.”

Whitney Information Network, Inc.’s Better Business Bureau report says that they rate it unsatisfactory in part because of unanswered complaints of “misrepresentations during sales presentations at seminars.”

How does Texas define misrepresentation? At 132.055 (l), the law says you may be a Texas Proprietary School only if,

“(l) The school does not utilize erroneous or misleading advertising, either by actual statement, omission, or intimation as determined by the commission.”

Go through my all the pages of my Web site regarding Russ Whitney and you will come up with a whole bunch of evidence that fits one or more of those criteria. For example, see my article on his TV infomercial and my article on how his latest book got to be an Amazon best seller.

Advertising “designed to mislead or deceive prospective students” is also prohibited by §132.151(4) of the Texas Proprietary Schools Act. Rule 807.121 says, “A school shall not make deceptive statements in attempting to enroll students.” Subsection (b) of that section says the school must provide proof of its advertising claims when requested. I hope they will demand proof of the various claims made in the infomercial as well as proof of the “Legend of Russ Whitney” claims that seemed to be false in my investigation.

Rule 807.53 (c)(5) says,

“A representative shall not (5) give false, misleading, or deceptive information about any aspect of the school’s operation, programs, completion or employment rates, examination success rates, job placement, or salary potential;”

‘Accredited’

In their 7/16/02 10K filing with the SEC, Whitney Information Network, Inc. says,

“Whitney Education Group, Inc. is accredited by the State of Texas as a Certified Proprietary School, effective January 8, 1999.” [Emphasis added]

That statement is false and illegal. Whitney Education Group, Inc. is accredited by no one. The State of Texas does not accredit proprietary schools. They just license them.

Furthermore, the State of Texas anticipated schools overstating the meaning of being a Texas Proprietary School in Rule 807.122(d). It says,

“A school shall not use terms to describe the significance of the approval that specify or connote greater approval. Terms that schools may not use to connote greater approval by the Commission include, but are not limited to, “accredited,” “supervised,” “endorsed,” and “recommended.” [Emphasis added]

Intimidation, coercion

Rule 807.53 (c)(7) prohibits representatives from engaging “in acts or practices that have a tendency to intimidate, coerce, or mislead a prospective student into accepting enrollment.”

Zat so? Well let’s look at the list of words used by people who have been the subject of Whitney representatives’ attempts to sell them on enrolling in a seminar. This is from my article on what happens to you at Whitney’s “free training.”

• rude (used by many, many people)
• abusive
• bully
• crude
• manipulative
• drill sergeant
• slick (used by many, many people)
• very high pressure
• scam (used by many people)
• snapped my head off when I asked a question
• glared at him when he left
• did not want anyone asking questions
• humiliating
• acted superior
• demeaning
• put downs

Here’s another item from that same article on the use of ridicule by Whitney’s representatives to get people to sign up.

If you refuse to sign up for a paid seminar at the “free training,” you may be ridiculed as a loser. Persons who do not sign up are depicted as losers as a group by the speaker, and you may receive that or a similar accusation personally from one of the Whitney employees as well. All free with your “free training.”

The Cherry Hill guy said,

“…they did indeed try to make you feel like you’re a loser if you didn’t register for the seminar. They used wise-cracks and put-downs so that you rushed to the back of the room to sign-up at the end of the meeting, obviously thinking that you are now NOT a loser. I had no respect for that tactic.”

A Canadian attendee said those who left early were ridiculed afterward for having blown the best opportunity of their lives. “They couldn’t handle it. They left to go to a beer store and buy some cigarettes. No wonder they’re broke.” A Texas attendee said that when a few people left, the speaker started bashing the area of Texas where the seminar was saying the people there have “low mentalities and don’t understand the meaning of being rich” according to a posting on CREonline. Apparently, people leaving the “free training” during the break really outrages many of Whitney’s “free training” speakers.

Others have reported that the speaker berates persons who get up to leave during the seminar—that is, berates them publicly in front of the whole audience as they walk from their seats to the exits.

Rule 807.53 (c)(8) says representatives shall not,

“represent that a school…has…characteristics, use, benefits, or qualities that it does not have.”

See my article on Whitney’s TV infomercial for a bunch of pertinent examples.

‘The school is financially sound’

Section 132.055 (i) of the Act says the school has to be financially sound. How do they define that?

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.”

Whitney cannot do that. Whitney Information Network, Inc., the parent company of Whitney Education Group, Inc. has a negative net worth and has had for years. Here are the net worth figures for the last three years taken from Whitney’s 2002 annual report (available at the SEC’s EDGAR Web site):

Year	Whitney Information Network, Inc. net worth
2000	-$12,936,972
2001	-$10,382,725
2002	-$3,102,555
2003	-$4,157,000
2004	-$33,609,000

Section 807.32(a)(4) also says the company net worth must be positive after subtracting goodwill from the assets. Whitney cannot pass that test either because his company net worth is not positive even before subtracting goodwill, so it cannot possibly be afterward.

Section 807.32 (d) says Whitney can also meet the financially sound requirements if they maintain “a financial responsibility composite score that meets the general standards established in federal regulations by the U.S. Department of Education for postsecondary institutions participating in student financial-assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended.”

I do not know what those standards are, but I doubt they are significantly more lenient than the Texas standards. More likely, they are tougher and the State of Teas is just saying that if you are approved by the feds, you do not need to prove financial soundness to us. I suspect Whitney would be bragging about it if he met those federal standards.

'Current ratio of at least one-to-one'

Section 807.32(a)(3) says Whitney must have “a current ratio of at least one-to-one” in order to be a Texas Proprietary School. Does he?

No.

According to the classic text book Accounting Principles by Nisswonger and Fess, a current ratio is total current assets divided by total current liabilities. That calculation for Whitney Information Network, Inc. for the year 2002—the most recent available—is $16,559,971 ÷ $27,663,432 = .60. That’s less than one-to-one—which would be 1.00 mathematically. It’s less by 40%—not even close to one-to-one.

These financial standards must be met annually, not just the first year you apply. The schools have to submit annual financial statements to the Commission. These statements must be accompanied by “the owner’s sworn statement.” [Rule 807.32(b)] That raises the stakes. Sworn statements that are not accurate can trigger state and federal criminal laws.

'Good reputation and character'

Act § 132.055(j) says the school’s “administrators, directors, owners, and instructors” must be “of good reputation and character.” How is that defined?

Rule Section 807.2 (15) says,

“(A) never been convicted of a felony related to the operation of a school, and the person has been rehabilitated, including completion of parole or probation, from any other convictions that would constitute risk of harm to the school or students as determined by the Commission.”

“(B) has never been successfully sued for fraud or deceptive trade practices within the last ten years;”

He was sued successfully twice in Hennepin County, MN (Minneapolis area). I do not know if that was for fraud or deceptive trade practices. He was also sued by the states of Florida, Michigan and Tennessee and by the Commonwealth of Pennsylvania for fraud and deceptive trade practices sorts of claims. All three resulted in voluntary agreements by Whitney’s company to behave. I do not know if that constitutes successful suit. Pretty close. There are a bunch of suits against him on the Lee County, Florida court clerk’s Web site. I cannot tell from the court’s Web site if they are successful and for fraud or deceptive trade practices.

“(C) …has never owned a school with repeated violations, and has never owned a school that closed with violations, including but not limited to, unpaid refunds;”

Might the above MI, PA, and TN complaints constitute such things? As I understand it, he ran “Bird Dog Program” seminars that they complained about—and he stopped doing them. Would the man who says “no refunds” have any unpaid refunds?

“(D) has not knowingly falsified or withheld information from the Commission.”

I will attempt to get a copy of the various documents Whitney has provided to the Commission and go over them with a magnifying glass to see if they contain any false information or material omissions. Given the discussion above, it seems like it would be hard for them not to.

Instructor qualifications

Texas has some pretty tough qualification requirements for instructors at proprietary schools. Whitney claims to be a high school dropout. If so, he cannot teach Texans. However, he sometimes admits to having a high school education.

Generally Texas wants you to have a masters degree including at least six semester credit hours in the subject being taught and at least one year of practical experience in the subject in question within the last ten years. If you have less education, the amount of practical experience required goes up. If you are just a high school graduate, you must have at least five years of experience in the subject being taught.

I have heard that few of Whitney’s real estate investment instructors actually invest in real estate. Sounds like I need to get hold of the applications those instructors submitted to the State of Texas.

Continuing education of instructors

Rule 807.84(c) says Whitney must have an annually updated written plan for instructor development including continuing education and attendance at trade and professional conferences. Except for one guy who is a CCIM, I would be surprised if Whitney instructors are worrying about continuing ed or attending real estate meetings.

I used to attend a lot of such meetings and I never saw representatives of any gurus there. I expect they would laugh in your face if you suggested such a thing in a private setting. If they do any continuing ed or attend any conferences, I would expect it would only be those on how to sell more seminars, not on how to invest in real estate or do any of the other things they teach.

Evaluation of instructors

Rule 807.84 (e) says the school director shall allow the students the opportunity to formally evaluate each instructor.

Oh, really!? Sounds like something to ask for in depositions. If they have few or no such evaluations, they are probably not in compliance. Or if the evaluations they give me are all glowing, one would have to wonder why the evaluations at the Better Business Bureau are not.

Cost comparison

Section 132.021 (a) of the Texas Proprietary School act says the Commission will prepare a comparison of the cost to a student of a course at one of the schools they regulate with schools they do not regulate—like colleges and adult education.

Expert consultation

Section 132.021(b) says the commission may consult a recognized expert for assistance in determining minimum standards for that field. Good idea. Texas A & M has a very active real estate department. Seems like they could help.

Success rates of students

Section 132.055(o) says the school must furnish the commission with the current rates of students who get jobs in the field. I do not know if that applies to Whitney because most of his courses are about self-employment activities. But there are other success stats like property purchases that could be provided for real estate investment courses.

Rule 807.92(b) says,

“No subject or program shall be approved unless the school demonstrates that the program’s quality, content, and length reasonably and adequately impart the job skills and knowledge necessary for the student to obtain employment in the stated industry.”

Rule 807.94(a) says,

“The school shall ensure that each program prepares the student for the stated occupation.”

I’d like to see an expert’s opinion on whether any of Whitney’s programs do that.

Rule 807.101 (b)(2) says the school shall demonstrate, “a minimum employment rate for program graduates in jobs related to the stated occupations.”

From what I’ve heard, get-rich-quick seminar material generally ends up unopened and unused in the attic. A lot of the real estate guru courses advertised on eBay are described as “unopened.”

If you translate that to the various self-employment schemes Whitney teaches, I doubt his programs would pass muster. They all seem to be get-rich-quick schemes that promise to teach impossible subjects like how to get rich in real estate in months (witness the testimonials of people who claim to have put large sums in their pockets within weeks or months of taking the course) with no cash, no credit (“any level of cash or credit” is in the infomercial), no experience, and without taking any risk (They use the word “safely” in the infomercial) or expending any effort. (I exaggerate, but only slightly.)

Rule 807.124 (b) says,

“Advertisements shall not contain dollar amounts as representative or indicative of the earning potential of graduates unless those dollar amounts have been published by the United States Department of Labor.”

It seems pretty clear that Whitney’s infomercial violates that. It has graduates bragging about making tens of thousands of dollars on this deal or that. I cannot imagine that the Department of Labor puts out statistics on how much real estate investors make after attending a seminar.

Renewal fee

According to Rule 807.112 (b)(1), the annual renewal fee is .31% of the gross tuition collected not counting refunds. Whitney does not pay refunds so in his case it would just be .31% of the gross which was $62,145,237 = .31% x $62,145,237 = $192,650.

Did Whitney pay that much to the Texas Workforce Commission for 2002? I don’t know. If he did, seems like they ought to have a staff of about three people devoted to nothing but watching him full time. Conversely, if they shut him down for non-compliance, they might have to lay off some people.

Registered representatives

All representatives of Whitney Education Group, Inc. must be registered annually with the commission. [Rule 807.51] That would be the people who were selling you the seminar in a meeting room or by phone. §132.059 (a) I will try to get and publish a list of them and the dates they were registered so you can see if the one who sold you was legal.

Representatives must be of good reputation. The school is responsible for any representations or misrepresentations, expressed or implied, by a representative. [Rule 807.51(b)]

No gifts

Representatives may not offer as an inducement any material consideration to a prospective student prior to enrollment, such as cash, food, or gifts. [Rule 807.53(c)(2)] If I understand correctly, Whitney does offer and has offered various gifts and prizes for attending his come-on seminars. See my article on his “free training.” He claims that these gifts or prizes have values in the hundreds of dollars.

Federal Trade Commission Act Regulation 16 CFR 251 also governs the use of the word “free” or the offering of any gifts or prizes.

Bonding requirement

Texas Proprietary Schools must post a bond or equivalent security with the Texas Workforce Commission. I would like to see the application form filled out by Whitney or his company for that bond.

Texas proprietary schools may not accept an enrollment contract from a representative who is not bonded. §132.151(3).

To complain to the Texas Proprietary Schools Commission

Send an email to frank.hammack@twc.state.tx.us. Do not rant and rave or complain about why they have not stopped Whitney already. Just give them the facts and evidence they need to decide whether to pursue Whitney. Their budget has been cut. The more work you can do for them, the more likely they will work on your case because you are helping them stretch their thin resources.

Rule 807.221 says the school shall provide a written grievance procedure to all students and maintain records of all grievances filed and how they were resolved.

Texas Attorney General

I asked the Texas proprietary School representative if they ever worked with other state agencies like the attorney general. He said they did work with the Attorney General when the DTPA was involved.

DTPA?

Deceptive Trade Practices Act

I know the Texas Deceptive Trade Practices Act. I used to be a landlord in Texas, owning three apartment complexes there. I have written a number of articles and book sections that cite it.

Texas’s anti-litter campaign has a slogan Russ Whitney ought to remember:

“Don’t mess with Texas.”

John T. Reed

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