by Craig Harris - Jun. 2, 2008 12:00 AM
The Arizona Republic
Their advice in Rich Dad Poor Dad has appealed to millions of readers and even drew the interest of Oprah, but the Valley co-authors of the wildly popular financial book have broken up.
And, like many divorces, it isn't pretty.
Sharon Lechter, who co-authored Rich Dad and other similarly branded books with Robert Kiyosaki, alleges in a lawsuit that her ex-business partner and his wife are enriching themselves, diverting assets and wasting money in a business that she claims to have helped build from scratch. Click Here
The Kiyosakis deny the allegations and contend in court records that if Lechter has been "damaged," it was caused by her own actions.
Success from the original book catapulted their joint venture, commonly known as the Rich Dad Co., into a multimillion-dollar operation with offices in Scottsdale. The company now offers more than 20 financial books, CDs and games with a key objective: to achieve wealth.
Lechter said in a lawsuit that while Robert Kiyosaki has been the face of the company and appeared on TV programs, she was the one who "refined and created" the original book. She also claims in the suit that Kiyosaki once told staff members she was the only "indispensable" person on the team.
Lechter, a certified public accountant who lives in Paradise Valley, now wants a judge to dissolve the joint venture, appoint a receiver and have Robert Kiyosaki and his wife, Kim, pay her compensatory and punitive damages. Lechter also alleges that Robert Kiyosaki's "volatile temper, spurious accusations, foul language and inappropriate behavior" created a hostile work environment for her. The Kiyosakis denied the allegation.
"It is evident that Robert and Kim have executed a plan to willfully destroy the joint venture, while simultaneously and purposely diverting opportunities belonging to the joint venture to one or more entities owned exclusively by them," Lechter alleges in the suit.
Robert Kiyosaki, who co-wrote a financial book with billionaire Donald Trump and has appeared on The Oprah Winfrey Show, declined to be interviewed. He and his wife live in Phoenix, and the suit claims the couple has accumulated more than $9 million through various Rich Dad entities.
The Kiyosakis have sought to dismiss the case, but the two sides also have set June 11 as a deadline to reach a settlement. They began fighting last year in Clark County District Court in Nevada.
In court records, Lechter said she filed there because the Rich Dad entities are part of a joint venture based in Nevada called CASHFLOW Technologies Inc. If a deal can't be reached, a trial is set to start Dec. 29.
Kim Kiyosaki said the full story has not been told.
"I guarantee you, what you have is one side of the story. We have not presented our case," said Kim Kiyosaki, who, court records show, owns an equal third of CASHFLOW with her husband and Lechter.
Kim Kiyosaki also responded in writing to a series of questions from The Arizona Republic.
She wrote that the lawsuit was a first for CASHFLOW. And she added that Rich Dad Poor Dad is her husband's story; he wrote the book and Lechter edited it. She also wrote that there is no reason to consider having a receiver appointed based on "our profitability and growth."
"The bottom line is that Robert and I are going through a divorce with our former business associate. Sharon Lechter resigned from the company in July 2007," she wrote. "As in many divorces, Sharon's perception of her contribution and value to the company is a surprise to us and at odds with what we perceive it to be."
Lechter also declined to be interviewed, and her attorney did not return calls. An attorney for the Kiyosakis declined to comment.
Lechter, however, issued a statement May 22, after being told that The Republic was doing a story on the lawsuit.
In her one-page statement, Lechter was complimentary of the Rich Dad organization, saying its mission always has been to "elevate the financial well-being of humanity."
She also wrote, "We remain hopeful that an amicable resolution can be reached and that the business partnership can be closed on pleasant terms."
In the lawsuit, which includes hundreds of pages and some sections that are sealed, Lechter's tone is harsher. The case also could become fodder for those who have challenged the non-traditional advice in Rich Dad Poor Dad. The book advises readers to avoid mutual funds and 401(k) plans and to leverage themselves up to invest in small businesses and real estate.
Allegations
Lechter, in the lawsuit, claims she "often rewrote large sections" of other books she and Robert Kiyosaki co-authored. And she alleges that Success Stories, Rich Dad Poor Dad for Teens and Escape From the Rat Race were written with ghost writers. Robert Kiyosaki's "involvement was limited" even though he is listed as the lead author on the cover of those books, the suit alleges.
Kim Kiyosaki, in responding to the paper's written questions, said a writer/editor was brought in for Success Stories to organize stories readers sent in after reading Rich Dad Poor Dad. She added that Rich Dad Poor Dad for Teens is based on the original book, and the company hired a cartoonist to work on Escape from the Rat Race.
Lechter also alleges:
• Robert and Kim Kiyosaki manipulated their salaries with Robert's increasing and Kim's decreasing for personal tax-planning reasons, and they gave themselves a discretionary bonus of $250,000 each in August, shortly after Lechter left the company.
Kim Kiyosaki wrote that it was not appropriate to discuss company finances or personal taxes, but she added that their pay and bonuses have not varied from what they were historically paid.
• Robert in 2005 demanded that his wife get a 25 percent royalty on all new books even if she didn't have a role in writing them.
Kim Kiyosaki wrote that she and her husband did not want to get into that issue, but she wrote that the allegation was "petty and hurtful."
• In February 2007, Robert attended the NBA All-Star game in Las Vegas with a Rich Dad adviser and had the company pay for a private jet and other travel expenses that weekend. Lechter, in an affidavit, cited this as an example of "exorbitant" spending and mismanagement of company funds.
Kim Kiyosaki wrote that the company has an ongoing business relationship with the NBA, which wants to bring financial education to its players.
An NBA spokesman acknowledged that league officials had met with Robert Kiyosaki "but he has not done work for us."
• The couple has commenced a systematic campaign of mismanagement to suppress the value of the company and one primary goal is to ensure product "housed in Nevada does not sell."
Kim Kiyosaki wrote that the allegation is "ridiculous" and the company is "more profitable and productive than ever."
The Rich Dad story
Lechter currently has her own Web site and for free writes a personal finance column for Arizona Woman, an Arizona Republic magazine.
She and Robert Kiyosaki developed their partnership around 1996. At the time, he was looking for someone to help write a book to promote an educational board game he had co-created, the suit says.
Lechter, in the suit, says Kiyosaki gave her hundreds of pages of material and she "reorganized and coordinated the content" and determined which portions to "include and exclude" in Rich Dad Poor Dad.
At the time, no major publisher wanted it. So it was self-published and released April 8, 1997.
Within a few years, the book had taken off, and an appearance by Robert Kiyosaki on Oprah Winfrey's show in 2000 enhanced his celebrity status. Today, the book has sold more than 27 million copies in 109 countries and has been translated into 51 languages.
Robert Kiyosaki advocates taking control of your finances and buying investments that create cash flow, and the book is based on how Kiyosaki's two "dads" approached money.
He has said his biological father was highly educated but struggled financially and left a legacy of unpaid bills. However, he said his other father, a mentor, never finished eighth grade but became one of the richest men in Hawaii, leaving millions of dollars to family members and charities.
Sara Fleury, a Phoenix-based public-relations consultant who offers crisis management guidance, said how much the suit damages the Rich Dad Co. and the Kiyosakis depends on how the couple and their employees react.
"They need to lay low and hope it doesn't elevate," said Fleury, president of B.J. Communications. "If they pay a lot of attention to it and convey their concern frequently, it will cause more alarm."
John Reed, a California-based real-estate writer and frequent critic of Robert Kiyosaki's advice, said he doesn't believe the lawsuit will hurt Kiyosaki. Reed added that he had heard it was filed months ago, but didn't know the details.
"I don't think it will dent him, and I don't think it will hurt her," Reed said.
'Rich Dad Poor Dad' team splits in chapter of 'He said, she said'
Want to Retire Rich?
By John Rosevear
I don't know anyone, except an old friend who became a Zen monk, who doesn't dream of being wealthy someday.
Even those who have been financially successful sometimes dream of hitting it really big -- of hundredfold stock returns, of lottery wins, of finding out that their long-lost uncle has the initials W.B. and runs a successful company in Omaha.
For most of us, the odds of such windfalls are pretty low. If we want to be rich someday, we'll have to make our own windfall.
Use what they give you
The U.S. government has made it awfully easy for to us to become rich. You only need two things: a job and some common sense. With those, you can become rich using only what the government gives you.
What have they given you? IRAs. Workplace savings plans like 401(k)s. Tools, in other words, that let you park money in investments and watch it grow -- completely out of reach of the tax man.
These tools can help you fund incredible retirement dreams -- if you use them the right way.
The right way
Effective retirement saving -- which is what we're really talking about -- isn't that hard. No matter how old you are, if you have an income -- and some common sense, as I said -- you can make your retirement years more comfortable.
And if you're young, and just getting started, you can build some very serious wealth -- even on an ordinary income.
How? Here's the formula:
* Spend less than you earn. This is the real key to wealth, has been for thousands of years. Whether you earn a little or a lot, you'll have a lot more later if you spend less now.
* Use those retirement tools. If you're spending less than you earn, you have extra to save. Enroll in your employer's workplace savings plan, if you haven't already. Learn about the power of IRAs, and start contributing.
* Take everything they give you. Maybe you're already enrolled in your employer's 401(k) or 403(b). But are you taking full advantage of the match? Nearly all employers match your contributions up to a certain amount. That's free money. Get it all.
* Invest Foolishly. Not foolishly, Foolishly. Use the Fool's investment research and educational resources to find good investments, learn how to take risks sensibly, and build a solid long-term portfolio.
And yes, long-term is the key. Sure, some people have done well with short-term trading strategies, but that kind of success requires luck, intense focus, and a full-time commitment. Is that how you want to approach retirement planning?
Or would you rather buy a few great companies and hold them? Blue-chip superstars like Johnson & Johnson (NYSE: JNJ), Altria (NYSE: MO), Coca-Cola (NYSE: KO), and General Electric (NYSE: GE) have built fortunes -- or just nice nest eggs -- for thousands of savvy investors over the years.
With the recent market turmoil, now could be a great time to buy the next century's blue chips, whether from a list of perennial outperformers your grandfather would recognize, or from the best of newer companies like Apple (Nasdaq: AAPL), NVIDIA (Nasdaq: NVDA), or Garmin (Nasdaq: GRMN).
While spending less than you earn might be the key to wealth, buying great stocks and holding them over the long-term may well be the greatest secret of all.
The Foolish bottom line
But it's not something you can set and forget. You have to stay on top of it. I don't just mean watching your investments, although that's important. You have to continue to monitor your whole financial picture, think about your future, and do the planning necessary to realize your dreams.
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Fool contributor John Rosevear owns shares of Apple. Johnson & Johnson is a Motley Fool Income Investor choice. Coca-Cola is an Inside Value pick. Apple, Garmin, and NVIDIA are Stock Advisor recommendations. Garmin is a Global Gains selection. The Motley Fool has a disclosure policy. fool.com
How to Become Rich
a strange offshoot of the Bill Gates Personal Wealth Clock by Philip Greenspun
Rolls Royces.
Getty Center underground garage. Los Angeles, California. As a graduate student in computer science at MIT earning a $1600/month research stipend, I feel amply qualified to instruct the entire Internet on the art of becoming as rich as Bill Gates (check the Wealth Clock to see how much he has right now). I get my confidence from Dr. Leo Buscaglia, author of Love, Born for Love : Reflections on Loving, Living, Loving and Learning, and Bus 9 to Paradise. Dr. Buscaglia, our nation's most prominent lecturer on the subject of love, turns out to be divorced ("it was a very loving divorce").
Lesson 1: Choose Your Grandparents Carefully
Sequoia National Park, California
"There are three ways to make money. You can inherit it. You can marry it. You can steal it."
-- conventional wisdom in Italy
William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle's National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III.
In some of the later lessons, you will be encouraged to take entrepreneurial risks. You may find it comforting to remember that at any time you can fall back on a trust fund worth many millions of 1998 dollars.
Lesson 2: Choose Your Parents Carefully
Redwood. King's Canyon National Park, California.
"A young man asked an old rich man how he made his money. The old guy fingered his worsted wool vest and said, "Well, son, it was 1932. The depth of the Great Depression. I was down to my last nickel. I invested that nickel in an apple. I spent the entire day polishing the apple and, at the end of the day, I sold the apple for ten cents. The next morning, I invested those ten cents in two apples. I spent the entire day polishing them and sold them at 5 pm for 20 cents. I continued this system for a month, by the end of which I'd accumulated a fortune of $1.37. Then my wife's father died and left us two million dollars."
William Henry Gates, Jr. and Mary Maxwell were among Seattle's social and financial elite. Bill Gates, Jr. was a prominent corporate lawyer while Mary Maxwell was a board member of First Interstate Bank and Pacific Northwest Bell. She was also on the national board of United Way, along with John Opel, the chief executive officer of IBM who approved the inclusion of MS/DOS with the original IBM PC.
Remind your parents not to send you to public school. Bill Gates went to Lakeside, Seattle's most exclusive prep school where tuition in 1967 was $5,000 (Harvard tuition that year was $1760). Typical classmates included the McCaw brothers, who sold the cellular phone licenses they obtained from the U.S. Government to AT&T for $11.5 billion in 1994. When the kids there wanted to use a computer, they got their moms to hold a rummage sale and raise $3,000 to buy time on a DEC PDP-10, the same machine used by computer science researchers at Stanford and MIT.
Note: Recall that in the 1980s we venerated Donald Trump and studied his "art of the deal". If Donald Trump had taken the millions he inherited from his father and put it all into mutual funds, you'd never have had to suffer through one of his books. But he'd be just about as rich today.
Lesson 3: Acquire Research Results by Hiring and Buying
Cows and Church. Tingstade (northern Gotland). Conventional (loser) economic wisdom holds that monopolies should spend heavily on research because they are in a position to capture the fruits of the research. But if you want to become as rich as Bill Gates, you have to remember that it is cheaper to wait for a small company to come up with something good and then buy them. In the old days, antitrust laws kept monopolies from buying potential competitors. But not anymore. When Microsoft products were threatened by network computers and Web-based applications, they simply bought WebTV and Hotmail.
Another good strategy is to hire the right people. Some of the guys who wrote Microsoft Windows had previous worked on window systems at Xerox PARC. So Xerox paid for the research; Microsoft paid only for development.
In the long run a tech company without research probably can't sustain its market leadership. So you'll eventually need to build something like research.microsoft.com (check out netscan.research.microsoft.com to see some interesting online community research).
Lesson 4: Let Other People Do the Programming
South Island, New Zealand If you're a great engineer, it can be frustrating to rely on other people to translate your ideas into reality. However, keep in mind that the entire Indian subcontinent is learning Java. And that if Microsoft, Oracle, SAP, and Sun products simply worked and worked simply, half of the world's current IT workers would be out of a job. You're not going to get rich being "just a coder." Especially working in painful low-level imperative languages such as C or Java. It might be worth writing your own SQL queries and HTML pages since these tend to be compact and easier than precisely specifying the work for another person to do. But basically you need to get good at thinking about whether a piece of software is doing something useful for the adopting organization and end-user. Bill Gates does code reviews, not coding.
[If you aren't sure that you need to be filthy rich and like to do some coding, see this old misguided article for more about what it might mean to be a great software engineer.]
Lesson 5: Train your new CEO
Garden. Getty Center. Los Angeles, California. If you're an intelligent curious person it can be painful to run a company of more than 50 people. You spend more time than you'd like repeating yourself, sitting in boring meetings, skimming over long legal documents in which you know there are errors but aren't sure how serious, etc. The temptation is to hand over the reins to the first "professional manager" who comes along. And that's what the standard venture capitalist formula dictates. But Bill Gates didn't do that. He hired Steve Ballmer in 1980 and gave him the CEO job 20 years later. Making money in the software products business requires domain expertise and a commitment to solving problems within that domain. Great tech companies are seldom built by non-technical management or professional managers who aren't committed to anything more than their paycheck. Adobe is another good example. The two founders were PhD computer science researchers from Xerox PARC who were passionate about solving problems in the publishing and graphics world. They are still guiding operations at Adobe.
Note that this is a principle that Old Economy companies have long understood. Jack Welch joined GE in 1961 and became CEO 20 years later. Sometimes an Old Economy company may pull in a few outsiders to senior positions but, because they have such stable bureaucracies underneath, they can more easily afford this than startups.
See Charles Ferguson's High Stakes, No Prisoners (1999) for a longer explanation of how hired-gun CEOs manage to kill software products companies.
Lesson 6: Focus on Profit
"At Hewlett-Packard, people, materials, facilities, money, and time are the resources available to us for conducting our business. By applying our skills, we turn these resources into useful products and services. If we do a good job, customers pay us more for our products than the sum of our costs in producing and distributing them. This difference, our profit, represents the value we add to the resources we utilize."
-- David Packard in The HP Way
Remembering to make a profit was tough in the dotcom 1990s but it turns out that Hewlett and Packard's ideas were right. Most of the management teams at dotcom businesses, by being disorganized, unintelligent, and ignorant, were subtracting value from the resources that they controlled.
How does one make money in the software products business? Simple. The necessary step is to build something that becomes part of information systems that generate value for organizations and end-users. Once you've created value you can extract a portion in lots of ways. You can be closed-source and charge a license fee. You can be open-source and charge for training, service, support, and extensions. But if you aren't getting your software product into important information systems, you don't have a prayer, no matter how slick your marketing materials.
If you're creative and diligent the software products business is extremely lucrative. If you're losing money, ask yourself what you're doing wrong. The answer is probably "plenty".
Lesson 7: Let the Venture Capitalists Schmooze Wall Street ...
... but don't let them run your company. A profitable Microsoft Corporation brought in venture capitalists (VCs) at the last minute. They didn't need or spend the money but used the VCs to boost their valuation at the initial public offering, thus getting more money for the shares that they sold. Venture capitalists are dangerous because even the most successful might not know anything about business. Remember that there are tens of thousands of venture capitalists in this world. Assuming that they make random choices of companies in which to invest there will be a Gaussian curve of performance. Some firms will do consistently better than average even if everyone is guessing. Imagine that thousands of monkeys are flipping coins; some of the monkeys will get 10 heads in a row. These are the monkeys that will be celebrated for their insight. These are the monkeys whose track records will lead to uncritical cheerleading by underwriters and public investors. In bull markets such as we had in the 1990s nearly all the monkeys will be fairly consistent winners. But remember your next-door neighbor who made money in the stock market in 1985. He convinced himself that he had special insight and ability when actually he was only holding high-beta stocks in a rising market. So his foray into the commodities futures market wiped him out in the crash of '87.
Bottom line: successful software products companies spend most of their time listening to their customers and users rather than to venture capitalists.
[See "Money, Money, Money (and Investing)" for how the Gaussian curve works for mutual fund managers and also read Princeton Professor Burton Malkiel's A Random Walk Down Wall Street.]
Lesson 8: Self-Esteem is Not Job 1
Gentility, politesse, decorum, and high self-esteem are wonderful. You can achieve all of these things within your organization. And then watch it be destroyed by competitors where frank and, if necessary, harsh criticism is encouraged. Technical people, even (and especially) those fresh out of school are always convinced that whatever they've developed, no matter how hare-brained, is perfect. It takes a technical person with good judgement to notice the flaws and it may require repeated and increasingly harsh delivery for the, uh, pinhead to realize his or her mistake.
Example: I once encountered a group of 6 people who called themselves "engineers." To solve what they thought was a new problem, they were going to build their own little database management system with their own query language that was SQL-like without being SQL. I pointed them to some published research by a gang of PhD computer scientists from IBM Almaden, the same lab that developed the RDBMS and SQL to begin with in the 1970s. The research had been done over a five-year period and yet they hadn't become aware of it during several months of planning. I pointed them to the SQL-99 standard wherein this IBM research approach of augmenting a standard RDBMS to solve the problem they were attacking was becoming an ISO standard. They ignored it and spent another few months trying to build their enormously complex architecture. Exasperated, I got a kid fresh out of school to code up some Java stored procedures to run inside Oracle. After a week he had his system working and ready for open-source release, something that the team of 6 "engineers" hadn't been able to accomplish in 6 months of full-time work. Yet they never accepted that they were going about things in the wrong way though eventually they did give up on the project.
An 1994 New Yorker article about Microsoft relates "If he strongly disagrees with what you're saying, [Gates] is in the habit of blurting out, 'That's the stupidest fucking thing I've ever heard!'". Jennifer New, a former Microsoft contractor, writes "Meetings with Bill or one of his top people are often replete with a barrage of expletives and other disdainful comments." (Salon, September 1997) My friends who work or have worked at Microsoft tell similar tales. But how different is this from other elite organizations?
When I arrived at MIT as a first-year graduate student in electrical engineering and computer science, I asked a professor for help with a research problem. He said "The reason that you've having trouble is that you don't know anything and you're not working very hard." A friend of mine was a surgery resident at Johns Hopkins. He complained to one of his teachers that he was having trouble concentrating because he'd been up all night for several nights in a row. The professor replied "Oh... does your pussy hurt?" According to Business Week, Jack Welch "encouraged near-brutal candor in the meetings he held [at GE]".
The bottom line: self-esteem is great but beware of creating a cozy home for unproductive people with bad ideas.
More
Plato addresses some of these issues in the first book of The Republic (available online from www.gutenberg.net). Socrates asserts that people who've inherited fortunes tend to be light with their money but that people who've made their fortunes "have a second love of money as a creation of their own, resembling the affection of authors for their own poems, or of parents for their children, besides that natural love of it for the sake of use and profit which is common to them and all men. And hence they are very bad company, for they can talk about nothing but the praises of wealth."
Socrates asks Cephalus, a wealthy old man, "What do you consider to be the greatest blessing which you have reaped from your wealth?" Cephalus replies that "The great blessing of riches, I do not say to every man, but to a good man, is, that he has had no occasion to deceive or to defraud others, either intentionally or unintentionally."
In the Decameron, Boccaccio writes "If you really want to make the big bucks, what you really need is a monopoly on the desktop operating system. But the Sherman Antitrust Act, 15 U.S.C. § 1 and 2, and Clayton Antitrust Act, 15 U.S.C. § 25, are real bitches."
