Rent-A-Husband Service Raises Questions
PORTLAND, Maine - Kaile Warren was depressed and homeless when, through "divine intervention," he got the concept - and brand name - that would make him something of a national celebrity.
Warren says God presented him with the idea for a home-repair franchise and this slogan: "Rent-A-Husband: For those jobs that never get done." At the time, the former home builder was lying surrounded by rats in an abandoned warehouse - or in a homeless shelter or on a friend's couch, depending on the version he's pitching to the media.
The state of Warren's homelessness in the mid-1990s is only one of the questions swirling around the 10-year CBS Early Show home-repair contributor, author, three-time Oprah Winfrey Show guest and founder of the Rent-A-Husband chain, a USA TODAY investigation has found. Even the number of active franchises and their locations is hard to pin down, and Warren (his first name is pronounced "kale") won't comment.
What is certain: Buoyed by his national media presence and well-scripted sales pitch, Warren persuaded dozens of people to invest at least a total of $4.5 million in his business, which was more than $3 million in debt and had assets of just $142,000 as of March, according to company financial documents reviewed by USA TODAY. He faces disputes over promised payments to investors, including one lawsuit, and is under investigation by the Maine Division of Securities.
Former Rent-A-Husband office assistant Lyn Lemieux says she invested her entire retirement savings - nearly $26,000 from her 401(k) after taxes and penalties - after Warren repeatedly urged her to invest it. She met Warren while she was working at a law firm that represented him.
"People never, ever, ever said a bad word about Kaile," she says. "I was captivated by the opportunity that my investment would bring a very, very nice chunk of change, and that I would be able to do a lot of the things I'd never been able to do before."
Lemieux is among a group of disgruntled investors that includes a couple facing foreclosure, a disabled veteran and the wealthy founders of a children's charity. Each claims to have been promised big returns by a confident, gregarious personality who has boasted of his business as being worth up to $80 million.
Michael Waxman, the attorney for the two investors who filed the lawsuit, thinks Warren may be "a crazy cockeyed optimist (who) really believes the next big deal is around the corner (and that) he'll pay them back." In the lawsuit, Christian and Colleen Olsen claim Warren is guilty of fraud. Warren's attorney filed a motion to dismiss the case two weeks later, denying the fraud claims and saying the couple are simply unhappy about the deal.
USA TODAY was able to confirm that 15 investors have not been repaid and are unhappy about it. At least three investors have contacted lawyers hoping to file lawsuits only to be told they would be wasting their money because there's nothing to get.
Warren says disgruntled investors are in a minority, but he would not provide names of satisfied ones other than Eva Goetz and Kevin O'Connell, who runs a Massachusetts consulting firm. O'Connell says he's working without pay at Rent-A-Husband to help, "not just to get (his investment) back but also to grow it."
Goetz of Falmouth, Maine, an artist whom Warren says is his single-biggest investor, says, "No one likes to lose, especially when you have a lot of money in the company," but says she has been paid "some dividends" and maintains that she still believes in Rent-A-Husband. Bill Hudson, who works in the oil industry in Texas, says he is an investor and owns franchise rights for Texas and Louisiana. He says he is "working to grow the investment." Cheryl Carrier, who owns a chain of child care centers, also confirmed she was an investor and has "let it ride," because "I know what it's like when you need the cash."
Warren says he started Rent-A-Husband, in part because work in his family's construction business showed him "the great disadvantages that are oftentimes taken of women by people in the construction trades. I vowed to one day do something about that." He says his investors were all "smart money people" who knew what they were doing when it came to investing. He says his company has been plagued by setbacks including his heart disease, the recession and, most notably, a decision by hoped-for business partner, Ace Hardware, to sever ties with him.
He says in due time he will repay everyone.
"It is easy to be swayed by people claiming to have been victimized," says Warren. "The people (who invested) were accomplished people at the time of their investments. . . . I have nothing to be ashamed of."
Big dreams, small returns
For a new business, Warren had quite a start.
His story drew significant national and local publicity. By 2003, five years after he'd started operating Rent-A-Husband out of his hometown here, he had caught the eye of national retailer Ace Hardware. A year later, Ace featured Warren at its trade shows and encouraged its store owners to start franchises.
In the fourth quarter of 2007, Warren says, Ace estimated Rent-A-Husband could bring in $80 million in sales during the first year of "rolling out franchises together" and $200 million a year in five years. Ace would not comment on or confirm the numbers to USA TODAY, but Warren soon began using them in media interviews and with some investors. Warren also says Ace was discussing the possibility of buying a stake in Rent-A-Husband.
In a segment that first aired in October 2007 on the CNBC show The Big Idea with Donny Deutsch, Warren ran through the now-scripted highlights of his homelessness and nodded when Deutsch declared Rent-A-Husband was "currently doing $80 million and is projected to do $200 million." The screen read, "Company says 2006 sales were $80 million."
"We're on a roll," Warren told Deutsch.
Yet in an interview with USA TODAY in August, Warren said the company has lost hundreds of thousands of dollars each year for the past five years.
In March, Warren's attorney, David Johnson, said in a letter to Kevin Grimes, a Maine attorney for one of the investors, that "audited financials" were not available for 2007 and 2008, because "There are currently no funds to pay the accountant." A 2005 tax return Johnson provided Grimes showed gross receipts of $114,107. Johnson did not return calls or an e-mail seeking comment.
Johnson also told Grimes in writing that Warren had not made enough money in the past three years for him to need to file a personal tax return.
Grimes says he has not filed a lawsuit on client Joanne Grace's behalf because he doesn't believe there is any money or assets to get, and she'd be wasting money she doesn't have.
Warren lives in a $400,000 ranch home on the banks of Mill Pond in nearby Windham. The home is in the name of his live-in girlfriend, Donna Leith, whose name is also on the title of the $275,000 home next door that the couple rents out. Warren says he has no hobbies and spends most of his waking hours trying to build his business.
Warren says he told CNBC the $80 million and $200 million figures were what his company could make, not what it was making. A CNBC spokeswoman declined to comment. In promissory notes for some investors reviewed by USA TODAY, Warren used "$7 million" or "$10 million" to describe the value of his company. He said he used these numbers because an investment group that once owned almost half of his company valued it at $7 million in 2000, and, as with the Ace numbers, they represented what experts believed his company was - or could be - worth.
He says Rent-A-Husband still has multimillion-dollar potential and has happy existing franchise owners, including Linda Roark of Castro Valley, Calif. She met Warren at an Ace conference and decided it would be "a perfect fit for us," she says. She and her customers "just love Rent-A-Husband."
Warren says his lawyers are completing work on the franchise documents required since July 2008 under federal law for him to sell franchises. According to the Federal Trade Commission, it is illegal to accept money for a franchise without supplying the Franchise Disclosure Documents - which include the franchiser's financial statements - two weeks in advance of accepting money for a franchise.
Lori and Ray Johnson of Fort Collins, Colo., say they invested money toward the "future purchase" of a Rent-A-Husband franchise in spring 2009. They are now "extremely nervous about the money we've given Kaile," Lori Johnson says. On Oct. 5, they sent a certified letter to Warren asking to get back their $35,000 investment plus interest.
Warren says he has more than 120 inquiries from potential "mom-and-pop" franchisees and 10 from Ace Hardware store owners.
'I was almost paralyzed'
Warren says the beginning of his serious troubles began in November 2007, when Ace Hardware discovered an unrelated $152 million accounting error that forced Ace to restate earnings back three years. Still, even after the setback, Warren says, Ace asked for an estimate of what it would cost to buy a 50% stake in Rent-A-Husband.
In March 2008, Ace called Warren, telling him it planned to back off all expansion plans, including the potential partnership with Rent-A-Husband. Ace said in a statement that there were "a number of business reasons" the talks were discontinued.
Warren says he was so shocked, he stared at the wall for hours: "I was almost paralyzed."
But he continued to seek investors, to try to sell franchises and even to seek funding for a new retail store.
In May 2008, Warren persuaded real estate broker Peter Forbes to invest $10,000 in this new store idea and promised a 20% return by May 2009. Forbes contacted a lawyer recently and says, "I was told it would be a waste of money to pursue, because there isn't any money to get."
An interested venture capitalist
Warren didn't seek money only from those who now describe themselves as financially vulnerable or inexperienced. In Rent-A-Husband's early days, a venture-capital fund in the Louisville area, Prosperitas Investment Partners, put $2.4 million into Rent-A-Husband after its managing partner researched the home-repair market and talked to investor and Portland native Jeff Moody, former president of KFC and now CEO of the Subway Franchisee Advertising Fund Trust.
Steve Bing, the former managing partner of Prosperitas, recently spent more than an hour at his Herndon, Va., office explaining why a professional investor like him put millions of his fund's money into a Maine home-repair business with a handful of locations.
"This is going to sound a little bizarre," Bing said. He explained that Moody told Bing "how cool" Rent-A-Husband's concept was and that "several prominent and smart people in Portland have invested."
Moody, who invested his own money in the company and is listed on the 2005 tax return as a partner, says he saw potential in Rent-A-Husband because home repair was estimated to be a $5 billion industry yet lacked a national brand. Warren, he says, "had a good vision for what he wanted to do with it, and the media still kind of liked the story and liked him."
Given its stake in the company, Prosperitas moved the company to Louisville, made Moody the CEO and tried to expand it into the national brand Warren long dreamed it could be. There were a few early successes, including good growth in Maine and two franchises in the Louisville area, but Bing says the company got bogged down in disagreements over spending and expansion plans. By 2005, Prosperitas had written its investment down to $1 million.
A source of optimism
If Warren indeed believes his company can still make it big, as he insists it can, it's not hard to see where the optimism comes from.
Weeks after his epiphany to start the company, he says, he bought a panel van for about $500 and put "Rent-A-Husband" on the side in black electrical tape.
After distributing fliers around Portland, Warren says, he met the then-Maine bureau chief for the Associated Press when she called him to do work on her home. That led to a 1996 AP story, which noted his divine intervention occurred when he "fell asleep on the couch." (Warren first told USA TODAY he was living in a homeless shelter when God spoke to him and later said he was in the abandoned warehouse, which also became his office after he put in a phone line.)
The AP story kicked off a multiyear media tour that started with segments on The Tonight Show with Jay Leno and went on to include profiles in Parade and People, guest appearances on national and local TV and a book contract.
Now, Warren says his biggest challenge is turning his "inverted brand" into one that actually makes money rather than just news clips. Most companies, says Warren, build their business and then attract media: "We did it the other way around."
That dichotomy was apparent recently when Warren was contacted by a reporter for a local weekly newspaper asking him about unhappy investors, including the couple who accused him of fraud in their lawsuit. An hour later, he says, he had a call returned from The Oprah Winfrey Show.
". . . Extraordinary highs and lows have been the pattern since the beginning of (Rent-A-Husband)," says Warren.
Rent-A-Husband, says Moody, "has been on the verge of getting a breakthrough several times. Something just always gets in the way."