Enjoy the conclusion to my three-part saga about how I lost $250,000 in a winner-of-an-investment gone bad.  (This happened before Steve and I met and founded Hughes Capital.  It was a painful experience, but of course, the greatest learning experiences usually are.)   Be sure to read parts 1 and 2 before continuing with part 3. 

Now, I want to share with you five lessons I learned from this harrowing experience.

Lesson #1: Trust Your Gut

Trusting my gut — and the people I do business with — are two lessons I’ll never forget!

When you see red flags at the start of a business deal, trust your gut.  I knew something was off when we were only allowed to communicate with other CORF owners who had been pre-approved by CORF Licensing Services.  In retrospect, it’s an obvious red flag, but at the time, I felt like I had done my due diligence.  We tried like the dickens to contact other CORF owners without the help or approval of corporate, but we found it impossible.  (This was 2002, and we didn’t have the same internet sleuthing capabilities that we have today.)  I’m certain that if I’d had the opportunity to talk to other owners and hear their honest experiences, I would have been able to save not only my $250,000 but literally years of heartache!

If you recall, I had gone to Dallas to meet with those designated owners and sat with them in their facility, reviewing the P&L statement line item by line item.  After all, they had two facilities already open and claimed to be opening a third since things were going so well.  At the time, I didn’t have a clue that those owners were being paid by CORF Licensing Services to lie to people like me.

I’m sure the Dallas CORF was also in trouble, and since they were people of low character and little integrity, they accepted payments from CORF Licensing Services to offset their loss.  I’m still uncertain how or where this all started, but I do know that many of the shills agreed to testify in court in exchange for lighter sentences.  I don’t think any of them did time in prison.  Too bad!  This is the perfect segue to my next lesson…

Lesson # 2: The Justice System Doesn’t Always Protect the Good Guys

After this experience, I felt let down by the justice system.  I learned that the legal system is slow and wasn’t there to protect me like I thought it was.  I felt like I was this lone figure waving, “Hey! This is a problem!” but those who should have cared didn’t seem interested.  Think about it: if you walked into a bank and demanded that the teller give you $100, you would do time in prison if you were caught.  The guys from the Dallas CORF were paid more than $700,000 and only received probation!  I don’t know if they had to pay any restitution, either.

Just the fact that CORF Licensing Services was able to keep advertising in Fortune Magazine and accepting people’s money was very frustrating when it was so apparent it was just a scam.  But I still kept careful records that eventually helped to put the president of CORF Licensing Services in prison, so at least there was some justice served.

Lesson #3: Sometimes the Numbers Lie

Early in the process, we were shown numbers that were very compelling.  The figures were juicy and there seemed to be plenty of profit margin, so it clouded my thinking.  I ran the numbers for the worst-case-scenario and came to the conclusion that, even if the business was half as profitable as they claimed, I would do well.  When their paid shill confirmed the numbers, I didn’t push harder.  My options at that time were to wait or not invest at all, but I was ready to move forward.  I had done my best to make data-driven decisions, but it’s hard to know the truth when the data is fake.

Lesson #4: It’s All in the Timing

Ultimately, I consider myself lucky.  You might think that is strange, but it could have been much worse!  I could have opened a facility or two here in Reno and sunk hundreds of thousands of dollars into the business only to watch it fail, like the bankrupt owner in Roseville who asked me to take over his operation, and like the many others I was finally able to speak with around the country.  I was lucky because of the timing of that one single email that did them in — the email that made everyone’s email addresses visible.  If that message would have arrived six months later, it would have cost me dearly.  I also had enough resources still available and was able to seek out my next adventure, whereas many of the other owners had spent their last dime trying to make their CORF investment a viable business.  Life is so much about timing.

Lesson #5: Only Do Business with Those You Trust 

My last lesson is simple in theory: know who you are doing business with!  It’s not always easy to find out who someone is, and often someone’s true self emerges only when the chips are down.  (When things are going well, it’s easy for the bad guys to disguise themselves as the good guys.)  Things can and do go wrong all the time in business.  It is neither fun nor pleasant when they do, but it helps to be partnered with people of integrity and high moral character.  These folks will save your keister, even if they have to take a hit.  Find them, vet them, stick with them.

I hope this three-part series helps you avoid the mistakes that I made, or, if you’ve gone through a similar experience, I hope it helps affirm that you are not alone.  Ultimately, losing a quarter of a million dollars made me a smarter business owner and investor.  Despite the dollars lost, I feel like I gained an invaluable amount of experience and wisdom.

Big wins often come with big risks, but I still believe that, no matter what, the true “good guys” always come out on top.