Enjoy the conclusion to my three-part saga about how I lost $250,000 in a winner-of-an-investment gone bad.  If you have already read the first two parts of this story (be sure to read parts one and two before continuing with part three), you know 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.  Now that you’ve heard the full story, let’s get to the good part; I want to share with you five lessons I learned from this harrowing experience.

Lesson #1: Trust Your Gut

This scene from the movie Liar Liar, featuring Jim Carrey pulling his hair out from frustration, is how I felt during this whole debacle.  But, once it was over, I realized I had learned some really good lessons along the way.

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, so unfortunately 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 also years of heartache!

If you recall in part 1, I had gone to Dallas to meet with those designated owners.  I 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 (although, the fact that they were opening the third facility without CORF was another red flag I looked past).  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

If someone steals $700,000, should they end up behind bars?  I would say so, but the legal system doesn’t always follow up how you would hope.

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 the teller give you $100, you would do time in prison if you were caught.  The guys from the Dallas CORF who lied to me about the service and their businesses, 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 still able to keep advertising in Fortune Magazine and accepting people’s money was very frustrating; I had clear evidence against the company, making it 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.  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.  At that time, I had the option to wait or not invest at all, but after crunching the numbers, 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, or 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 made everyone’s email addresses visible, allowing all the failing CORF owners to communicate and recognize the scam.  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.

This is when my business partner, Steve Sixberry, and I had a cameo on the TV show Friends.  Okay, that may be a joke, but making sure you know the people around you (especially in business) should be a top priority before you make any major deals (like sending $250,000).

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.