PORTLAND – A state prosecutor dropped all criminal charges Wednesday against Kaile Warren, the founder of the Rent-A-Husband home repair business.
Warren had been scheduled to stand trial next month on charges of securities fraud and theft by deception.
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In exchange for the dismissal of the charges, Warren agreed to a civil judgment that orders him to pay almost $2 million to the state to reimburse investors, some of whom alleged they were deceived by Warren about the value and performance of the Rent-A-Husband brand.
As part of the complex legal arrangement, Warren agreed to seek civil damages against Preti Flaherty, the Portland-based law firm that Warren says guided him through the process of seeking and obtaining investments.
Warren and his lawyer, Daniel Lilley, said they also will sue Marcus, Clegg & Mistretta, the Portland firm that provided legal services to Warren, and Ace Hardware, which collaborated with Rent-A-Husband on a business venture that fell apart in 2008. Lilley claims Warren was a victim of legal malpractice.
“He was following their advice to the ‘T,’ right off the cliff,” Lilley said Wednesday during a press conference at his office.
He said Warren is still on the hook for the $2 million because the investors lost that money through mostly unregistered securities, but the consent judgment issued Wednesday shows that Warren never intended to violate Maine’s securities regulations.
Warren has no money to pay back the aggrieved investors; any money that he might receive through his planned lawsuits would first be used for that purpose, according to the consent judgment signed Wednesday in Cumberland County Superior Court by Warren, Assistant Attorney General Michael Colleran and Justice Roland Cole.
Warren has maintained his innocence since his indictment in December 2009.
“I’m feeling on top of the world today,” Warren said during Wednesday’s press conference. “This was a wrongful prosecution from the get-go.
“I feel the system has not only let me down, it’s let the people of Maine down,” he said.
Colleran said he agreed to drop the charges primarily because of evidence that Lilley provided to his office recently. That evidence relates to past legal services for Warren and his businesses, Rent-A-Husband and KW Enterprises Inc.
While he would not provide any details about the evidence, Colleran said it would have made it much harder for the state to win the criminal case against Warren.
“Based on the evidence, it is more appropriately dealt with in a civil judgment,” he said.
Colleran said he knew that the judgment would disappoint some of the disgruntled investors, many of whom had pushed for the criminal prosecution. He told them about the arrangement in a letter sent out Tuesday.
Colleran declined to comment about Lilley’s assertion that he has strong civil claims against third parties, including Preti Flaherty. The consent judgment orders Lilley to check in monthly with the Attorney General’s Office regarding the status of the planned legal actions. Colleran said it is not his office’s role to be a party to any of those actions.
He declined to comment when asked if his office had considered filing a civil or criminal complaint against any of the third parties named by Warren and Lilley.
According to a summary of the case filed in court by Colleran, Warren sold more than 70 promissory notes for the Rent-A-Husband business from 2002 until the summer of 2009. He raised more than $2 million through the sale of those notes, to expand his business.
“In conjunction with the capital-raising campaign, (Warren) received advice regarding registration and disclosure requirements under federal and state securities law from legal counsel, and counsel drafted a form of promissory note and subscription agreement,” Colleran wrote. “At no time were the notes that were offered and sold by (Warren) either registered or considered federally covered securities. Although some notes may have been exempt from registration, the vast majority were not.”
Colleran also said the notes violated Maine securities law because they did not fully disclose the financial condition of Rent-A-Husband, and they included “valuation” figures about the company without explaining the meaning behind those figures.
Jonathan Piper, managing partner for Preti Flaherty, issued a brief statement Wednesday afternoon.
“We are pleased, for Mr. Warren, that the state has seen fit to dismiss the criminal charges against him,” Piper said. “However, since he and his attorney have announced their intention to sue the firm, and a number of others, we will not be publicizing the numerous defenses to the allegations in Attorney Lilley’s press release.”
Marcus, Clegg & Mistretta also issued a statement.
“Marcus, Clegg & Mistretta did nothing wrong or inappropriate in its representation of Kaile Warren. Indeed, what the firm advised Mr. Warren to do was work with the state to try and reach an agreement with respect to his businesses, without any admission of guilt or liability, the very result his current lawyer has apparently worked with him to accomplish,” the firm said.
Christopher Boniface, a spokesman for Ace Hardware, could not be reached for comment Wednesday.
Warren founded Rent-A-Husband in 1996 and drew national media attention for his franchise concept. His plan was to grow the business by selling franchises. In May 1999, he told a Portland Press Herald reporter that he had sold 26 franchises nationwide and two in the United Kingdom. But by early 2002, Warren said only seven Rent-A-Husband franchises were operating.
Warren hoped the franchise concept would take off through a 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 customers.
In 2006, an Ace executive told Warren that the company wanted Rent-A-Husband to grow its corporate operations so that it would be able to support 100 new partner locations.
Warren recruited investors to provide the capital for that effort. Rent-A-Husband was losing money at the time, but Warren felt it was worth the risk for the potential reward of the deal with Ace. In March 2008, though, Ace backed out.
After that, Warren’s business plans unraveled and he could not repay most of his investors.
Warren was a town councilor in Windham from June 2007 until December 2008. He suffered two heart attacks that winter, which forced him to step down from the council.
Staff Writer Trevor Maxwell can be contacted at 791-6451 or at:
tmaxwell@pressherald.com
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