Reply: 2.1.1.1
From: Waverly Bay
Attached is the second article from the AFR...
_____________
Making money the Kaye way
Apr 22
Tina Perinotto
You can be a doctor or a welfare recipient, but when the lights shine on investment promoter Henry Kaye at his seminars you will be offered a fast ride to easy street.
The latest promotions focus on mezzanine property finance. ``Henry will explain how, by using a combination of strategies it is possible to earn up to 105 per cent per annum,'' the advertisements promise.
And Mr Kaye's brochures for his property investment seminars, which can cost up to $20,000, say: ``Get filthy rich. Make investors and banks beg to give you their money.''
But several sources and documents indicate that instead of leaving a trail of riches, Mr Kaye leaves behind a string of questions about his statements and his methods.
Interviews have revealed several people for whom the promises just didn't work out. In interviews with The Australian Financial Review, some sources have labelled his investment techniques "outlandish" and impractical.
Mr Kaye is variously described by those who have encountered him as charismatic, charming and a reasonable guy who wants to help people. From the outside looking in, Mr Kaye's over-riding message seems reasonable. Secure your own future by taking advantage of a rapidly rising property market.
Not so for Ronnie Kagan, a former director and shareholder in several of Mr Kaye's companies, who says he pulled out of the group after a year having lost "hundreds of thousands of dollars". He said his decision to drop out of the business with Mr Kaye was because he felt the operations were "very unprofessional".
Then there's sales consultant Charlie Kessler, who worked for the company from March to November last year but left after he tired of paying a licensing fee of $6,125 a month, the cost of advertising for seminars and expenses for setting up his own company, including an office and telephones.
Under the Kaye approach, his sales staff become independent business people, who pay for a licensing agreement to sell his seminars.
The targets in the latest batch of advertisements are "retirees and superannuation funds as well as ordinary 'mum and dad' investors".
According to Mr Kaye, 70,000 people have attended his seminars and 8,000 have been to intensive courses.
Many say some of the information is technically good. A current Melbourne client, Dale Burnside, a project manager with the Carson Group, said he and his wife had made a success of Mr Kaye's strategies, buying several properties and committing to several more.
But the AFR has spoken to former associates and clients, among them doctors, lawyers and business people, who are angry. Others are simply embarrassed.
At every junction of the Henry Kaye road to wealth is a system of toll gates for clients who are charged small fortunes.
But the appeal has been immense and former sales staff said some people had left good jobs, mortgaged their houses and sold investments to join Mr Kaye.
Tim Scott, a sales consultant who left the company in September last year, said Mr Kaye's promise to his recruits when he joined in early 2001 was earnings of up to $200,000 in commission income a year. In the early days, during 2001, this was indeed possible, Mr Scott said.
Commission was $1,300 on each course that was sold. Another commission of $600 was also payable to a "master agent" as shown in a detailed cash-flow analysis of earnings structure.
But as business dried up after September 11, sales consultant Mr Kessler said competition between consultants and in-house staff intensified. "In the end, there was so much greed, we were selling leads to each other," he said.
Mr Kagan, who said he owned 50 per cent of the Empower Group (which runs the Sydney side of the business), a percentage of the advocacy services (which sourced property investments for clients) the Business Mastermind Alliance and Capital Holdings, said that during his period with the business, there were "about 10,000 people taking business and property seminars".
"We were doing 100 to 200 sales a week. I got involved, saw what I saw and got out very quickly." Mr Kagan said his concerns centred on practices he disagreed with and treatment of staff.
He alleged staff were charged a licensing fee, payable in advance, and would "wait months and months before they got their money" on commissions.
Clients are offered considerable help on buying investment property, everything from sourcing a property through to finance, help with finding tenants and renovations.
The investment strategies are aggressive: "You'll learn how to buy two, three even four $300,000 to $450,000 properties at the same time, and how to finance them even if you have no deposit, and a limited 'credit facility'," say the brochures.
"Buy projects with less than 1 per cent deposit and sell for 900 per cent profit."
"Bankrupt? You can still borrow money," they say.
Clients are sourced first through cheap seminars such as the current crop, at $39 a session. You can even bring two guests, free of charge.
Prices for the courses, which have names such as the Business Mastery, Investment Mastery and Financial Mastery Boot Camp, started at about $5,000 and moved to about $15,000 and $20,000.
"You could spend $40,000 on programs," said Mr Kessler.
Under the heading "Powerful Sell", a sales manual tells staff to offer a rebate of $2,000 if they pay for a Business Mastery course at $14,965 through a finance contract with the ANZ, which has since pulled out of the deal.
If the client does not qualify, Select Capital (a company associated with Mr Kaye) would be available.
According to the Powerful Sell manual: "Say to the client that their application looks strong and that we have some good news for them ... instead of having to pay it off over two years at almost [$]600 per month they can pay it off over five years for just over [$]300 per month."
Graduates of the courses, which have recently been accredited through the Victorian Qualification Authority, can pay $6,000 plus GST for a property consultant to source property investments, according to several former consultants.
Mr Kaye said his group had companies that sourced properties for potential investors. "These companies do not sell property directly to investors," he said.
Former consultant Mr Scott said he left the organisation not just because of his own financial losses, constant change in company names and commission structures, but because many clients were unhappy.
"They were still paying out the money for the course but had no tangible results. I got so sick of people crying on the phone, literally," he said. Some were "people with purple rinses in their hair. They'd never done anything of the kind before."
Another source who preferred not to be named said: "He frightens people, tells them they'll die poor, and that he wants to help them."
Mr Kaye said: "We appreciate that some people may decide the process is not for them, so National Investment Institute has a full money-back guarantee. A small percentage of our customers seek and receive a full refund."
But another former client said that by the money-back deadline of the third day of the intensive courses it was impossible to know if the strategies would work in practice.
"Our courses emphasise caution when investing in property," said Mr Kaye. "The courses describe the risks and advise strongly against multiple purchasing unless the investor has a detailed knowledge and history of successful investment."
Mr Kaye said this strategy was described as risky and dangerous for people early in their investment careers and people were advised to get the "best possible legal and valuation advice". He added: "Notwithstanding the risks, there are substantial profits to be made in property if people are properly educated and follow the rules."
He estimates only 5 or 6 per cent of people attending the advanced courses seek his group's help to source property: "Most go their own way." He said the sourcing fee was fully refundable if a property was not found this way.
Mr Kaye said it was possible that a "small number" of people who had been to the seminars may have lost money. "But this is almost certainly because they didn't follow the rules or they ignored our advice not to expect an instant return," he said.
Mr Kaye retains a curious loyalty from his former clients and staff.
Mr Scott explained it this way: "It's very psychological: people feel guilty if they say a bad thing about Henry.
"They feel that he has given them all this good information, and they feel really bad that they've failed. But the information is outlandish."