Robert Kiyosaki has been in the business of selling books and seminars, taking advantage of the Amway pyramid scheme and endorsements from Oprah Winfrey, and built his way to wealth selling his ideas about investing. A few years ago, he teamed up with perennial mogul Donald Trump to sell more books. Kiyosaki and one of his former companies were recently sued by an adult education program producer and promoting for allegedly failing to pay their agreed fee, and Kiyosaki lost the judgment. His company was ordered to pay the Learning Annex and its founder $23,687,957.21.
The company that was sued has already been inactive, and doesn’t have the assets to pay the $23 million. It appears Kiyosaki did a masterful job of protecting his assets; although the guru is presumably wealthy on his own, his other businesses and his personal wealth is protected. He won’t have to pay the $23 million. He has declared bankruptcy on behalf of his company that was sued, and the Learning Annex will be set to receive only a small portion of the judgment, most likely whatever assets are left in Kiyosaki’s old business.
Declaring bankruptcy carries a stigma. Some might consider it ironic that a man who talks about financial prowess might end up in a supposedly weak position. For an individual, declaring bankruptcy is an opportunity for new start, but it comes at a price. Bankruptcy stays on your credit report for many years and makes it more difficult to build wealth in the future. And there are certainly people who simply make poor decisions with credit to the point where it becomes overwhelming, and the declare bankruptcy because it’s easier than finding a way to change the situation.
Because Kiyosaki was able to protect his personal assets from the judgment, bankruptcy for his company is the best business move to make. It’s the only choice when faced with a requirement to pay a company far more than what is left in the business. You can be confident, however, that the “few million” left in the company that the Learning Annex will be able to get its hands on represents a small portion of Kiyosaki’s overall wealth.
Michael Kitces, a financial planner, noted on Twitter that Kiyosaki did the right thing by leaving a few million in the company. Had he left nothing, the Learning Annex might have worked harder to get to Kiyosaki’s wealth in his other businesses or his personal wealth.
Will bankruptcy hurt Kiyosaki’s reputation?
Kiyosaki has garnered an army of rabid fans over the years, thanks to his no-nonsense, politically incorrect attitude, easily mistaken for “telling the truth.” Cult of personality is an ugly thing, and blindly worshiping a leader is a sure path to closed-mindedness and reduced access to cognitive ability. It’s clear that he has inspired many people to look at their finances for the first time, and he has introduced his audience to the idea of building wealth towards financial freedom. By being light on specifics, he has managed to shake off a good portion of criticism.
While society often judges the compulsive shopper who uses bankruptcy to clear credit card debt as someone who is skirting responsibilities and using the system to their advantage, society tends to praise businesses who use bankruptcy to restructure their corporate debt or to maneuver their strategy to take full advantage of what the law makes available. It’s a double standard; we want individuals to be responsible for their debt, even when faced with difficult circumstances like unforeseen medical bills or a nasty divorce, but we praise Donald Trump’s business acumen despite his four bankruptcies. The individual who files for bankruptcy lives with the negative consequences for years, but the business owners who file for bankruptcy can continue without much damage to their financial reputation.
The bankruptcy won’t hurt Robert Kiyosaki’s reputation among his fans. If anything will hurt, it’s the possibility that he didn’t pay his promoter as he agreed to do, and it might make it more difficult for him to find promoters who will work with him in the future. He won’t lose any of his rabid fans. That’s the benefit of having a cult-like audience. They ignore anything potentially negative.
From a business perspective, declaring bankruptcy is the right move for Kiyosaki to make. You can’t deny he dodged a bullet by not needing to personally guarantee the $23 million judgment thanks to great work by his accountants, a friendly judge, and the plantiff’s lack of desire to pursue the personal guarantee. I don’t see any reason why Kiyosaki’s other businesses or his reputation will suffer as a result. The better decision would have been not to enter an agreement with the Learning Annex that he couldn’t keep, if that is what happened.
Do you think bankruptcy will hurt or should hurt Kiyosaki’s reputation, particularly because he, unlike other business owners who use bankruptcy to their advantage, preach about responsible financial behavior to some extent?
Updated October 12, 2012 and originally published October 11, 2012.