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Charges, Suit Overshadow 'Rags-to-Riches Story' of Rent-A-Husband's Kaile Warren

December 28, 2009 - PORTLAND -- Time after time, Kaile Warren has told the world his story.

He was a down-on-his-luck handyman from Maine, out of work and sleeping amid rats in an abandoned waterfront warehouse, when his prayers for help were answered with a middle-of-the-night vision for a business, complete with a slogan: Rent-A-Husband. For those jobs that never get done.

Warren printed some fliers, then tucked them on windshields outside divorce support group meetings, and the calls started coming.

Before he knew it, he was sitting across from Jay Leno and Oprah Winfrey. There were profiles in People and Parade magazines, a book deal and requests for franchises. On CNBC's "The Big Idea" in 2007, Warren smiled and nodded as host Donny Deutsch said Rent-A-Husband had 22 franchises, did $18 million in sales in 2006, and was projected to do $200 million in the coming years.

"We're on a roll, and we'll keep going with it," Warren told Deutsch.

Investors liked what they heard. Many handed over cash in exchange for promissory notes pledging returns of 10 percent or 20 percent, often in one or two years.

Trouble is, according to state securities regulators, Warren's story was too good to be true.

Earlier this month, a grand jury indicted him on charges of securities fraud, theft by deception and sales of unregistered securities. Just weeks before, investors had blasted Warren in a scathing USA Today article.

The promissory notes that Warren issued should have been registered with the state, regulators said. Furthermore, Warren allegedly told investors that the company was a booming success when in fact it was losing hundreds of thousands of dollars a year.

Regulators say Warren used some of the money from investors to pay for restaurant meals and other personal expenses and failed to inform new investors about money he owed to prior investors.

According to the state, Warren owed $240,000 on promissory notes in 2003; by August 2009, that figure had ballooned to more than $1.6 million, owed to dozens of investors.

"His business could not meet its obligations without continuously selling more promissory notes," said Judith Shaw, a securities administrator.

WARREN DENIES ALL CHARGES

It is a legal and public relations nightmare for the Windham resident who was once a darling of the national media. Warren is scheduled to be arraigned Jan. 21 in Cumberland County Superior Court. If convicted of the most serious charge of theft, he will face as much as 10 years in prison.

Warren declined to be interviewed after the indictment, but he issued a statement denying the charges through the Portland law firm Marcus, Clegg & Mistretta.

"When all the facts are brought to light, it will become indisputably clear that he has done nothing wrong or illegal," the statement said, noting that many companies that were unprofitable in their early years sold securities.

"Mr. Warren looks forward to a full presentation of all the facts, and not just inaccurate and misleading accusations that reflect the sentiments of a few disappointed investors, as well as a fundamental misunderstanding of the workings of a genuine entrepreneurship," the statement said.

The statement echoed a theme that Warren sounded in an interview just before he was indicted.

At the time, he said he had always been upfront about the company's finances and asked people to invest based on what Rent-A-Husband could become.

"I have never hidden anything from anyone," Warren said.

EX-STAFFER SAYS SHE BLEW WHISTLE

Lyn Lemieux of Harpswell disagrees. She was hired as vice president of operations for Rent-A-Husband in 2005. Within months, Warren approached her about investing money she had saved for retirement, she said.

"He presented it as a can't-miss opportunity," said Lemieux. "I really liked Kaile, and I trusted him. He always presented the picture that he was a brilliant, successful businessman."

She noted his home on Mill Pond in Windham, and how she was impressed by the custom kitchen, the elaborate entertainment room and the fountain out front. Lemieux said Warren enjoyed boating on Little Sebago Lake.

Lemieux invested $30,000, and she was promised that it would be repaid with 10 percent interest in two years.

But as she settled into her job, she began to have concerns.

One of her main responsibilities was to speak with the owners of Rent-A-Husband franchises in Maine, making sure that the corporate office was receiving its 7 percent royalties on sales. Lemieux said Warren promised to provide franchise owners with marketing and other support but didn't follow through.

"He would get the money, and that was it," Lemieux said.

About two months after investing, Lemieux said, she asked for her money back, and Warren refused. In the summer of 2006, Lemieux warned a potential investor about putting money into the business. Warren found out and fired her, she said.

"He knew exactly what to say, he knew how to read people, and knew exactly how to reel people in," Lemieux said.

BIG HOPES FOR PARTNERSHIP

In the interview last month, Warren said Lemieux is part of a small group of people who have personal axes to grind with him. He said Lemieux and other investors received and signed seven-page documents prepared by a law firm, acknowledging the risks.

When the returns didn't come back as investors hoped, some got bitter, he said.

Warren said he doesn't live a lavish lifestyle, drives a $3,500 pickup truck and saves money by eating at fast-food joints.

"If you look at fast-money schemes, the CEO doesn't stand in here and take the blows," he said. "I'm at this every day, trying to make this business a success so that all of the investors win."

Warren said the main reason Rent-A-Husband has faltered is a failed partnership with Ace Hardware. He started talks with the national retailer in 2003 to affiliate Rent-A-Husband through its stores, with the stores selling products and "husbands" doing work for the customers.

From 2003 to 2007, Ace and Rent-A-Husband tested the idea at a handful of Ace stores. The tests went well, according to letters from Ace representatives, copies of which Warren provided to the Portland Press Herald.

In the fall of 2006, an Ace executive wrote to Warren, saying Ace wanted Rent-A-Husband to grow its corporate operations to be able to support the addition of 100 partner locations.

Warren needed money to back the expansion, so he reached out to investors.

He said he knew Rent-A-Husband would lose money as it supported new franchises, upgraded its computer systems and made other improvements.

"We were burning $350,000 to $450,000 a year," Warren said. "I felt the reward was worth the risk. It was at the point where Ace was talking about rolling out 100 franchises in one year. That would have made Rent-A-Husband one of the fastest-growing franchises in the world."

SETBACKS FOR THE COMPANY

And then, the deal was dead.

Ace backed out in March 2008, citing the "current business climate" in a letter. Warren said the company told him that a multimillion-dollar accounting error by Ace, which had nothing to do with the tests of Rent-A-Husband, contributed to the decision.

"They left me at the altar," Warren said.

In a brief statement provided to the Press Herald, an Ace spokesman said the company discontinued conversations with Warren "for a number of business reasons."

The company said it had no knowledge of Warren's talks with investors.

Warren has struggled to regroup and has been unable to repay investors. He had two heart attacks in late 2008, which also set the company back, he said.

Today, Rent-A-Husband owns and operates one location, on Riverside Street in Portland. There are five Rent-A-Husband franchises in Maine and 12 in other states, Warren said.

COLORADO INVESTORS 'FEEL VIOLATED'

Some investors claim Warren misled them about the Ace deal.

Peter Forbes of Windham said that when Warren sought his investment in May 2008 – two months after Ace shelved its plans – Warren told him that the partnership was a go.

Forbes considered Warren a friend and respected him as a member of the Windham Town Council. Warren served on the council from June 2007 until December 2008, when he stepped down because of his heart attacks.

"I knew the rags-to-riches story. He was a national star," Forbes said.

He invested in a $10,000 note, to be repaid with 20 percent interest in one year. He said he asked for his money when the note came due.

"He has never paid me anything," Forbes said. "He never told me that Ace had backed out, even a year later. I realized, of course, that I wasn't the only person dangling on this string."

Forbes said he received no documents indicating any risks associated with the promissory note.

Warren said Forbes didn't get those documents because he invested in a personal note, so the borrower was Warren, not Rent-A-Husband.

"I intend to pay him back as soon as I can," Warren said.

Lori and Ray Johnson of Laporte, Colo., saw Warren on "The Big Idea" with Donny Deutsch in 2007. They paid $10,000 in January 2009, and another $29,000 in March, for the "future purchase" of a Rent-A-Husband franchise, plus tools and a van.

Lori Johnson said she has since learned that the Ace collaboration had been shelved nearly a year before she and her husband dealt with Warren.

She also learned that Warren didn't have the legal right to sell franchises in Colorado. The Johnsons asked for their money back in a certified letter on Oct. 5, but they don't expect to see a check in the mail anytime soon.

"We feel violated," Johnson said. "We don't know what to believe anymore."

STANDING BY WARREN

But Darcy Siverson, who owns a Rent-A-Husband franchise in Woolwich, remains squarely behind Warren.

"If he is getting charged with putting all of his eggs in one basket, I don't think it is going to hold up in court," Siverson said. "My experience with Kaile has always been positive."

Siverson isn't sure how the charges against Warren might affect her business. Much of her work is done independently, but Warren maintains the Web site and a call center for the franchise.

Kevin O'Connell, a Massachusetts-based consultant who has been one of Warren's biggest allies, doesn't know how Warren's legal situation will affect the future of the brand.

O'Connell was a Rent-A-Husband customer several years ago. There was a problem with the quality of the work, so he contacted Warren.

"Next thing I know, Kaile is out there working on my deck," he said. "That impressed me."

Around 2003, O'Connell invested "tens of thousands" of dollars into Rent-A-Husband, and he has let it ride ever since.

"I don't know what Kaile said to other investors. When I invested, he was very straightforward and very upfront," O'Connell said. "I knew the risk I was taking."

O'Connell said that since the indictment, he has spoken on the phone with several other investors who are not pointing fingers at Warren.

"I would like to protect my investment. These other folks that I talk with are in the same situation," O'Connell said.

"I don't know if this is a death knell" for Rent-A-Husband, O'Connell said. "I haven't got a clue as to how this is all going to shake out."

By TREVOR MAXWELL, Staff Writer, Portland Press Herald, December 27, 2009


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