This sad story of frozen assets, if you will, begins with a company called Cryogen — a doomed company that attempted to treat brake pads and mechanical parts to last longer through super cooling. Yet Cryogen went down in flames itself.
Bart Lorang, CEO and co-founder of FullContact and a serial entrepreneur, knows only too well. Betting on the promise of lucrative contracts with the U.S. Air Force and Postal Service, he poured $25,000 into the company, while his investment mentor ponied up $500,000.
They lost it all — and it got worse: “I also convinced my girlfriend’s father to invest $500,000.” (Try sharing that bit of financial information with your sweetie.)
“We broke up,” he recalls. “But not because of the investment — I think.”
Lorang’s miscue addresses investing from the angel side, and plenty of public endeavors have proved even more distressing — not just bears, but full-blown Ursa Majors. Here’s a look at seven investments that frittered fortunes, frazzled nerves and rattled confidence on a grand scale, and some lessons that would-be investors can learn from these mistakes.
Flooz.com: While Flooz didn’t set the record for the costliest investment toppled by the dot-com bubble, it had no rival as the dumbest. Truly a goofy name and concept, “flooz” was a virtual currency you could use at any retailer who’d accept it. But Flooz squandered lots of real currency in the process — at least $35 million — before going bankrupt in August 2001 after just 19 months. In a world of Web winners and losers, it merited its own notorious category: a “floozer,” you might say. And it’s still laughable 14 years later: The domain name (which you can’t purchase with flooz) remains for sale at a Web hub that also links to “stainless pipe fittings.”
Crazy Eddie: This New Jersey retailer of consumer electronics had ads so over-the-top loud and obnoxious that Dan Aykroyd lampooned them on NBC’s “Saturday Night Live.” But it was far from funny when founder and CEO Eddie Antar drove investors nuts with his crooked antics. “The company went public, and the stock price increased rapidly from its IPO price of $8 in 1984 to more than $75 per share by 1986,” says Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania. All the while, Antar and family members were laundering money and cooking the books. By 1989, the company was forced into liquidation, leaving behind a mountain of litigation, angry creditors and wiped-out investors.
Kodak: Here’s an example of how investment wisdom — that is, buy stocks and hold them — sometimes fails to work out. Since Eastman Kodak Co. (ticker: KODK) dated to 1888, there was every reason to bet on the staying power of the one-time photo products powerhouse. But somehow, Kodak botched the transition to digital photography — even though it pioneered the first digital camera in the mid-1970s. If you bought Kodak around then (in 1973), the price was about $30 a share, and it peaked at more than $90 in 1997. But that’s when the dive began, resulting in worthless shares by the time the company filed for Chapter 11 bankruptcy in 2012. “If anyone should have been able to make the transition, it should have been Kodak,” says Mike Torto, the CEO of Embotics, a cloud management software company. It has since emerged from bankruptcy, “but hanging on and hoping Kodak could eventually leverage their brand, acquire some digital technology and reinvent the company is like relying on Hillary Clinton to turn over her emails,” Torto says.
theGlobe.com: When many dot-coms crashed around 2000, this early social network fell flat on its Facebook. Perhaps the most spectacular failure in dot-com history for investors, theGlobe set a record for an initial public offering in November 1998 when the stock skyrocketed from $9 a share to $63.50 by market close — almost breaking $100 at one point. Three years later, theGlobe was out of the Web hosting business, its stock disintegrating to mere pennies a share before Nasdaq delisted it.
South Sea Company: Going way, way back, this investor nightmare dates to 1711 and proved you didn’t have to be a pirate to make way with booty by sea. Granted monopoly trading rights with Spanish colonies in South America and the West Indies, “the company was the ultimate speculative endeavor, as it had no real assets or even any tangible prospects,” Johnson says. “One of the company’s business proposals used to raise capital was ‘for carrying on an undertaking of great advantage; but nobody to know what it is.’ That is the definition of a red flag for investors.” One big loser was none other than Sir Isaac Newton: “He lost 20,000 British pounds, the equivalent of more than $400 million today. This caused him to say, ‘I can calculate the movement of stars, but not the madness of men,'” Johnson says.
Enron: At one point, Fortune magazine voted Enron as America’s most innovative company for six consecutive years. In hindsight, Enron was innovative only in fraud, thievery and deception, unleashing what was at the time the largest corporate scandal and flameout in history. Getting “Enroned” became a verb synonymous with investing catastrophe, as the stock tumbled from $90 in August 2000 to 26 cents in November 2001. Worse yet: Investors were told by CEO Kenneth Lay to expect Enron shares to hit roughly $140, while he and other Enron execs were dumping their stock.
Satyam Computer Services: This company gained the nickname “India’s Enron” for its mega-corruption. Listed on both the New York Stock Exchange and Bombay Stock Exchange, the outsourcing IT giant had a market capitalization of more than $9 billion at its peak. But the stock fell 75 percent on Jan. 7, 2009, to $2.38 and didn’t open for trading the next day on the NYSE. “Much of its revenue growth was found to be simply falsified,” Johnson says. President B. Ramalinga Raju confessed to orchestrating fraud totaling nearly $1.5 billion, and the firm was sold through a public auction.
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7 Horrific Investments for the Record Books originally appeared on usnews.com
