Trump University was a lousy business, even if it was legal

Donald Trump insists he’ll be vindicated, and perhaps even reopen Trump University once several lawsuits are wrapped up. That seems doubtful, because Trump University was a lowbrow operation best kept in the shadows, compared with the gilded image Trump prefers to cultivate.

Trump is fending off three significant lawsuits involving the for-profit wealth-building business he started in 2005. Trump University, as it was known then, was actually the idea of a management consultant named Michael Sexton who had worked for Accenture and other firms. Trump’s reality TV show, “The Apprentice,” was popular at the time, and Sexton pitched Trump the idea of an instructional spinoff teaching people how to run a business. Trump ended up financing most of the operation and lending his name to it, in exchange for 93% ownership. Sexton became president, with a 4.5% ownership stake.

The original concept was to provide online business education for entrepreneurs. To develop a curriculum, Trump University recruited experts affiliated with universities such as Columbia, Yale, Northwestern and Dartmouth (where Sexton attended business school). But the housing boom was in full flourish at the time, and Trump University veered in another direction: it began to offer live events focused on real-estate investing. Beginning in 2006, Trump University licensed its name to a company called Business Strategies Group, which began hosting live events under the Trump brand.

Wealth-building industry

Trump University was hardly a novel operation. Around the same time, a whole industry of wealth-building instructional outfits began to spring up, with names such as Income Strategies Institute, Whitney Education Group, the Wealth Institute Academy, Fortune Builders, and Armando Montelongo Seminars. The business models were similar. TV or radio commercials would promote free seminars on how to make hundreds of thousands in real estate – often from buying, fixing up and quickly reselling homes in a sizzling market – endorsed by pitchmen seen on cable shows such as “Flip this House.” Attendees at the free seminar would hear a bit of instruction but also a pitch for a higher level of learning, which cost more. At that session, there’d be a pitch for even costlier sessions that could run into five figures. The top tier of instruction would often exceed $30,000.

Trump University promoted itself mostly through newspaper, radio and web ads, a Facebook page and direct mailings, all prominently featuring Trump himself. Ads never outlined the full menu of programs, but documents filed in a class-action lawsuit against Trump and the university show there was a free 90-minute “preview,” a three-day seminar that ranged from $995 to $1,995, a package of three three-day seminars for $10,000 and an in-depth customized program for $35,000.

There’s nothing inherently illegal or even unethical about such a business, even if the fees easily exceed the cost of a year’s tuition at a public university. But Trump University staffers allegedly pressured enrollees who said they couldn’t afford the fees to charge them on credit cards, and even to apply for new credit cards if the fees exceeded the credit limit. This is an extraordinarily suspect practice – especially for an outfit that’s supposed to teach people the secrets of wealth – since credit card interest rates routinely run in the double digits and personal finance experts warn vociferously against financing anything with credit card debt, except maybe an unavoidable emergency.

“I believe that Trump University was a fraudulent scheme,” one of the company’s sales managers, Ronald Schnackenberg, said in legal testimony. “It preyed upon the elderly and uneducated to separate them from their money.” He described being reprimanded once for not pushing one couple hard enough to pony up $35,000, because they were already in deep financial trouble. Another salesman closed the deal instead.

Impression of a scam

Even that, if true, may not be illegal. But it certainly created the impression among some Trump University enrollees that the operation was a scam, as any web search of those words reveals. The web site Ripoff Report has an archive of at least two dozen complaints from people who attended Trump University seminars, and there’s a long discussion thread at the real-estate investing site Bigger Pockets on whether Trump University was legit or bogus.

Trump claims 98% of the people who filled out student evaluations said they were satisfied with Trump University. But that too might be fishy. The 98% rating is based on roughly 10,000 completed surveys. Yet court documents reveal this breakdown of attendees at Trump University over the years: 80,308 showed up at a free event, 9,208 attended a three-day workshop and only 794 purchased one of the costlier custom programs. So it’s possible most or even all of those 10,000 evaluations were completed by people who only attended the free program and never paid a dime to Trump University. We certainly don’t know how satisfied the 794 folks who paid top dollar feel (except for those participating in the class action lawsuit).

Some of the seminar attendees have since said they were pressured to fill out positive reviews. Trump, meanwhile, points out that some of the named plaintiffs in at least one class-action suit wrote upbeat evaluations of the program, undermining the fraud they claim in the suit.

In May of 2010, Trump University changed its name to Trump Entrepreneurship Initiative, or TEI, because of complaints that it was holding itself out as an accredited educational institution, which it never was. The housing bubble had burst by then and foreclosures became more common than flipping. TEI shut down in 2011. While operating between 2005 and 2011, TEI generated an estimated $40 million in revenue and perhaps a small profit for Trump.

That’s a puny portion of his overall business portfolio, but Trump University could dog the Republican presidential candidate at least as badly this fall as an FBI investigation into former Secretary of State Hillary Clinton’s private email server will tarnish the likely Democratic nominee. Two class-action suits are grinding forward, with more ugly revelations about the inner workings of Trump University possible. And a fraud lawsuit filed by New York Attorney General Eric Schneiderman in 2013 may finally go to trial soon as well.

At best, Trump University will turn out to have been a high-pressure, bottom-feeder sales operation that exploited vulnerable consumers earnestly trying to get ahead. At worst, it will be found to have broken the law. Neither option represents the kind of “great asset” Trump likes to brag about, but an embarrassment he must certainly regret.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.