Rent-A-Husband Fall from Grace
PORTLAND, Maine – America’s home repair guru Kaile Warren, Jr., founder of privately owned Rent-A-Husband, has an important message for all business owners.
“Anyone who owns or is thinking about owning a business should pay close attention to the Rent-A-Husband story,” he observes. “Although borrowing money to finance a start-up from friends and family goes to the core of entrepreneurship, founders should understand the motives of those investing.”
Warren says he now knows that only too well. He is currently facing a three-count criminal indictment for securities fraud, handed down by a grand jury, which could send him to prison for the next 20 years.
The handyman-turned-celebrity warns that anytime business owners plan to bring in $10,000 or more to help finance their company, no matter if it is from one individual or numerous investors together, they are at risk of dealing in securities subject to very complex laws and regulations. What Warren is facing today is the result of securing financing for his start-up business, to test out with national development partner ACE Hardware, to advance his Rent-A-Husband franchise enterprise. The investment program was researched and written through his law firm, Preti Flaherty, complying with security regulations, requiring investors to sign subscription agreements advising of the risks involved. Warren points out that Preti Flaherty actually negotiated some of the convertible notes with investors first hand, but to date has been spared any criminal charges.
Unfortunately Warren has not.
In getting funding, Warren adamantly states that they were not just out there raising money for the sake of raising money. He said for the first five years starting in 2003, he raised funds under Preti Flaherty’s “friends and family” investment program. “The investment funds were essential for our testing programs. When ACE Hardware announced its desire for Rent-A-Husband to ramp up to accommodate the opening of 100 partner locations over a 12-month period, we suddenly gained national traction. More people became interested,” he explained. He said 63 percent of all investments were from the six months prior to the Ace Hardware spike, and the six months after ACE Hardware sent a corporate “prepare-to-launch” document. “That is pretty telling. It shows once the need arose based on the national ACE potential, I went out and spiked investment dollars to meet growth demands,” Warren said, adding that the influx of investment money parallels development with ACE.
ACE has reported that Rent-A-Husband’s performance numbers far exceeded any other national competitor that ACE Hardware has ever tested in-home services with, even though Rent-A-Husband was by far the smallest national test partner with ACE. “Based on those best-in-industry results, I raised monies in order to capitalize on a winning business model,” Warren explained.
Although he was confident that the Preti Flaherty-built investment program was sound and legally intact, Warren suddenly found himself at odds with a prospective franchise owner and Rent-A-Husband investor from Kennebunk, Maine, Joanne Grace.
After meeting Warren several years earlier, Grace became interested in investing in his program in 2006. She made two investments: one in April for $6,000 and one in July for $150,000, signing subscription agreements for both. When she showed interest in becoming a franchisee, Warren gave her all franchise disclosure documents, including financials, which she acknowledged by signing the required receipt. Once she became financially involved in the company, Grace expressed to Warren her interest in participating in the limelight of Rent-A-Husband’s celebrity.
Later that year, Grace willingly made two additional investments on behalf of her sister and mother, $85,000 and $15,000, respectively, as their authorized agent.
But in 2008 after a combination of events, Grace filed a complaint with Maine’s Office of Securities, prompting an investigation into Rent-A-Husband’s investment program. The inquiry focused on whether Rent-A-Husband provided investors with subscription agreements, which Grace claims she did not (see above links $6,000 and $150,000), showing the risks involved in their investments. Another was on whether Warren had created a false impression of his company, misrepresenting its valuation, and not disclosing the company’s existing debt.
Maine’s Office of Securities had put Preti Flaherty on notice, prior to their designing Rent-A-Husband’s convertible note program, that the company only had a total of ten exemptions. In 2002, in spite of what the state had given for exemptions, Preti told Warren their firm had come up with an investment program where they could sell 50 or more. When pressed by lawyers to present a clean bill of health for the investment program, Preti Flaherty abruptly resigned as counsel for Rent-A-Husband. Warren says that Preti Flaherty had built up a $540,000 interest in the company. He has since called on the law firm to defend their body of work and not to run from it, but to date Preti Flaherty has refused comment on this issue. Warren is now being represented by Daniel Lilley.
For the record, this reporter holds the written documentation of the Preti Flaherty law firm assuring Rent-A-Husband that the company could sell up to four times that amount of investors or more.
USA Today’s Damaging Report
Grace then turned to the media, capturing the attention of USA Today reporter Jayne O’Donnell, who after three months time wrote a scathing report last October, setting off a firestorm of bad press for Rent-A-Husband.
Warren immediately took issue with the article, demanding a retraction. He insisted that the reporter totally ignored all of the company’s documents and statements that he gave her, and fabricated numbers. USA Today printed one correction. It corrected the reporter’s error that ACE and Rent-A-Husband projected together that they could generate $80 million in the first year of the roll out, instead of the $18 million figure Warren said he gave her.
A Turn of Events
Although Warren has been no stranger to the media, appearing on numerous television programs such as Oprah Winfrey and CBS’s Early Show for a 10-year stint, his focus on growing his business took a sharp turn as the USA Today article triggered a distancing by ACE Hardware. He suddenly found himself defending the facts as he knew them, not only in the media but also with the Attorney General’s office as it delivered its first indictment on December 11, 2009.
Knowing a criminal indictment could send him to prison for 10 to 20 years, Warren feels he is now living out a nightmare. “My life is a living hell. It still seems so surreal. I used to always give the benefit of the doubt to government lawyers out of respect for the oftentimes courageous work they do. However, seeing how prosecutors in my case are bent on preserving their win/loss record over seeing justice is served, will forever rob me of the confidence I once had in our legal system.”
Warren vehemently denies all charges, saying many of his franchisees and investors who are his friends are sticking with him and understand the risks associated with investing, as in the subscription agreements they signed. “Implying criminal intent towards me tears my heart out. I have spent my life and all of my own wealth building a successful handyman system from scratch,” he stated.
Warren is currently conducting a national search for a securities expert who would be willing to work pro bono with his defense team to right this injustice.
Joanne Grace was contacted numerous times over the past week to be interviewed for this article. She repeatedly postponed scheduled times by email, offering various excuses.
(NOTE: Another Rent-A-Husband article to follow)
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Related Articles:
- Rent-A-Husband founder pleads not guilty | SeacoastOnline.com
- Rent-A-Husband's Warren points fingers at Ace, lawyer
- Rent-A-Husband founder indicted on felony charges – USATODAY
- Handyman Blues (Franchise Times Magazine: February, 2010)
- Rent-A-Husband founder indicted on felony charges - ABC News
- Rent-A-Husband's founder calls charges bogus .
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