The story now is that Lou E. Perez became so astonishingly successful so incredibly fast that not even he—not behind the wheel of the Ferraris, Porsches, Corvettes or Lamborghinis he bought, nor astraddle the 24-volt eBike that actor Andy Garcia gave him—was able to keep up with himself.
That's the story now. But that wasn't the story Perez told in the days when he used to tell his own story. The story back then—oh, pick any time before the morning of Nov. 4, 2003—was that nobody got anything past Lou E. Perez. That's how Perez explained his instant success in the outsource-staffing (read: temp-worker) industry, which made him a millionaire at 19. That's how Perez accounted for the empire he built and consolidated into a company called CheckMate, which by the time he was 33 was clocking revenues of $200 million per year through nearly 100,000 temp employees working out of 60 offices in seven states.
The story back then—right up to the moment of the predawn raid last autumn—was that Lou E. Perez was a classic “big-picture guy.” That's the way Perez described himself to an interviewer from Bentley Magazine, anyway. Yeah, Bentley, as in the car . . . or cars, in Perez's case. The article in Bentley said Perez owns two of them—an Arnage Red Label hardtop and an Azure Mulliner edition convertible.
Actually, the article said Perez owns two dozen cars with all kinds of luxury pedigrees. But it emphasized his special love for the Bentleys by pointing out that he tagged them with personal license plates bearing the names of his sons: KRISS 1 for the Arnage, GREGG 1 for the Azure. The Bentley Magazine profile overflowed with examples of Perez's voracious appetites and the lavish ways he satisfies them—the Rolex Submariner that heads his watch collection, his bespoke suits, Cohiba cigars, baby grand piano, designer warm-ups, and the basketball court where he shoots hoops and brainstorms in the middle of the night in the back yard of his 10,000-square-foot mansion in the Anaheim Hills.
The notation of each possession was underscored by Perez's explanation of the man-with-a-hands-on-plan he applied to the company that was rewarding him so munificently. “Our clients pay us to handle their problems, so we have to stay on top of ever-changing state and local laws,” said Perez. “We simply cannot fall short.”
That was Lou E. Perez's story, and he was sticking to it. Why not? People were buying it, experienced business people. In 2002, Ernst N Young named Perez Entrepreneur of the Year—the youngest ever to win the award. Hispanic Magazine listed CheckMate on its 2002 “Entrepreneur 100” list. Perez began moving in celebrity circles, too—thus that eBike from Andy Garcia. Perez bought courtside seats for Lakers games at the Staples Center and bragged he was friends with fellow Bentley owner Shaquille O'Neal. He invested in the Conga Room nightclub on Wilshire Boulevard's Miracle Mile, where his partners included Jennifer Lopez, Jimmy Smits and Sheila E. Last August, Perez was an executive producer of The Original Latin Kings of Comedyspecial on Showtime, which was hosted by Cheech Marin and starred Paul Rodriguez, George Lopez, Joey Medina and Alex Reymundo. In October, Perez launched his own film-production company—CheckMate Entertainment—and he expressed confidence that the “big picture” approach that had worked for him in the staffing business was going to pay off in show business. “I'm just moving my philosophy into a different arena,” Perez told The Hollywood Reporter.
Then very early on the morning of Nov. 4, 2003, more than 100 law-enforcement officers and investigators swarmed CheckMate's 22 offices throughout California. The raid was a coordinated effort among the state Department of Insurance, the San Bernardino County district attorney and the San Bernardino County Sheriff. They brought search warrants. They left with just about every document they could get their hands on.
Suddenly, Lou E. Perez is at the center of a massive investigation into workers'-compensation fraud. Law-enforcement officials are scrutinizing CheckMate's records to determine whether the company misrepresented itself to insurance carriers in an alleged attempt to qualify for lower premiums.
On Nov. 29, CheckMate filed for bankruptcy.
CheckMate World Headquarters—that's what it's called on the business cards—is in a shiny office building in an Orange business park. The company logo hangs over the Costa Mesa Freeway. We went to the ample corner office of the CEO. We wanted to ask Lou E. Perez: What happened?
But Perez wasn't there anymore to tell his story. The people who were there were telling a new one.
“Basically, what happened is that the infrastructure of the company didn't grow alongside its revenues,” explains Lauri Holcomb. She's blond with a firm handshake and a friendly smile. She's wearing an all-business suit, but the sharp creases in the pants and jacket are softened by a blouse with a scooping neckline. She's CheckMate's new Chief Executive Officer.
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“Lou is an excellent entrepreneur who grew the company from the ground up based on his sales ability and his presence,” Holcomb continues. “He has his master's degree in street knowledge, so to speak.
“But since Lou consolidated into CheckMate in 1999, the company basically grew year over year at a rate of 70 percent—going from $20 million revenue to $200 million revenue. The hard part comes in keeping up with that. If processes and procedures aren't replaced as you grow, well, you have vast challenges for an individual owner without experience in such things.”
So the story now is that Lou E. Perez is the victim of his own boundless energy and guileless wide-eyed naivet—of the cruel and complicated realities that lurk like land mines along the road to the American Dream. “I guess you could say that Lou got a real wake-up call,” offers Holcomb, smiling as though she hopes you might say it. Actually, though, it sounds better coming out of her mouth, since she is such a crucial part of Perez's wake-up call. She's the one who's imbued with Perez's former powers as CEO, while he's been figuratively kicked upstairs and slapped with the face-saving title of chairman of the board.
“I'm acting CEO,” Holcomb corrects you gently—then introduces Keith Williams of Crossroads LLC, who was retained as Chief Restructuring Officer when CheckMate filed for bankruptcy. Meanwhile, executive assistant Lois Tice sits quietly to the side taking notes and periodically interrupting the conversation politely to suggest what she calls “ummm, I guess you could say, perspectives.”
These are things Tice definitely hopes you will say—or better yet, write—which is her job as company flack. “It's important to note,” writes Tice in an e-mail she sends later, “that besides running a large corporation, Lou has always committed himself to devoting both time and resources to philanthropic, charitable and community benefit programs.”
Even when Perez was telling his own story, he never left out the community work. A nice chunk of the article in Bentley Magazine chronicled Perez's generosity. But now that his name is being mentioned in the same sentence with words like “insurance fraud,” Tice recognizes the added public-relations value of emphasizing Perez's association with scholarship awards, prenatal-care programs, gifts of food and toys to poor families, and his own Lou E. Perez Foundation, which assists families with catastrophically ill children. That's part of what Tice meant by “important.”
Holcomb, on the other hand, makes a case for the good that Perez has done simply by creating CheckMate: connecting employers who need workers with employees who need jobs.
“We don't call them 'employees'; we call them 'associates,'” clarifies Holcomb, utilizing a semantic made famous by the loudspeakers in Wal-Mart stores. “The associates are the foundation of this company, the people who actually do the work in the field. In any given week, we have between 8,000 and 13,000 associates—so that's a lot of people given the chance to support themselves and their families. Lou really values the associates.”
CheckMate pays most of them minimum wage. “Also, if they are on payroll with us for a consistent amount of time—I think it's 580 hours—then they are able to apply for benefits that the company pays for,” Holcomb points out. “That's unusual. The benefits only cover the employee, and they have to pay for their dependents. But Lou shows what kind of man he is by doing that for them—and 95 percent of them are minorities, and the vast majority of the minorities are Hispanic—and by treating the associates, literally, as family members.”
That theme is carried through in profiles elsewhere. In July 2000, an Orange County Business Journal reporter backgrounding CheckMate found this tale of brotherly love: when Monorovia-based Burnett N Sons Meat Co. created a bonus system for its full-time workers, Perez's temps working in the same company complained that they were unfairly excluded. It's a classic example of the dark side of the temp industry—with a happy ending: Perez himself paid the temp workers' bonuses.
“His own people got to take advantage of the bonus system, and I didn't have to pay twice for it,” president Don Burnett told the Business Journal. “That's part of what he's been able to provide us in the ways of service.”
And that's what CheckMate's clients want: cheap labor without the hassles of hiring and negotiating compensation and monitoring productivity and weeding out those who aren't productive enough. CheckMate does it all.
“That's where Lou's expertise is,” says Holcomb. “From recruiting the associates to getting the client accounts—the wholesales arm, really. He's got the ability to match the right associates with the right work sites and to get them there.”
Perez also has the responsibility to pay for workman's-compensation insurance—a policy that covers employees in case they are injured at work or suffer an occupational disease. Workman's comp is mandatory in California. There are more than 300 private insurers authorized to sell it in the state, as well as the State Compensation Insurance Fund (also known as “SCIF” or “State Fund”). Premiums for workman's-comp policies have skyrocketed, but an employer's failure to have it is a criminal offense. This is where Perez ran into trouble.
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“The raid basically occurred due to the worker's-comp issues with the state of California,” said Holcomb. “The worker's-comp challenge is big in any business, but for staffing companies, it's the highest burden.”
The focus of the raid on CheckMate is to determine whether the company did anything illegal to qualify for lower workman's-comp premiums. Typical schemes by employers include underreporting the size of their staffs or payrolls, classifying workers in high-risk jobs in lower-risk categories, and hiding the accurate number of workplace injuries.
But if Perez is guilty of anything, the people who are now telling his story in what used to be his office repeatedly insist, it is getting too successful too fast. “A lot of it is that the business grew too quickly,” says Keith Williams, the restructuring guy. “I wasn't here then; I don't know what actually happened—but I think it all lends itself back to the growth issue and how quickly the company grew without the correct structure supporting the growth.”
When that explanation was presented to the owners of two other temporary-staffing companies in Orange County, each of them laughed—literally—although neither of them wanted their cackling quoted or attributed specifically to them.
“Paying for workman's-compensation insurance isn't just one of the costs of doing business in this industry—it is very nearly the only cost,” said one. “This isn't something you forget or put off or don't know about, not any more than people who own factories would forget or put off or don't know about buying the machinery they need to manufacture their products.”
CheckMate's problems did not begin on the November morning of the raid. A civil suit filed by the State Fund in May 2003 accused CheckMate of shorting it $5.8 million and refusing to open its payroll records during an audit back in 2001. When it was denied access to CheckMate's books, the State Fund had unilaterally classified a number of associates at the highest rate. That increased CheckMate's workman's-comp debt by $3.3 million above the $1.6 million the company had already paid in 2000. State Fund did the same thing in early 2001, piling another $2.5 million in premiums atop the $350,000 CheckMate had already paid during the first two months of the year. Two years later, CheckMate still had not paid its bill.
“After the raid on Nov. 4, Lou, being an entrepreneur, realized he needed an [accounting] infrastructure put in place,” says Holcomb. “Since that time, on Nov. 26—the night before Thanksgiving—CheckMate and State Fund reached a settlement agreement.”
But CheckMate's bankruptcy filing on Nov. 29 basically puts State Fund in a waiting room with the company's other major creditor, the IRS. The criminal investigation by the Department of Insurance (DOI) continues.
“We've not heard from the DOI,” says Holcomb tersely. “I can't comment on that.”
CheckMate continues to do business, although the civil suit and criminal investigation has chipped away at its client base, a dozen offices have been closed and corporate employees have been laid off.
As for the future of CheckMate Entertainment, the film-production company was supposed to debut with a comedy feature called Car Thief, described as a twist on the 1980s comedy Trading Places; Holcomb and Williams simply shake their heads no.
Visitors to Lou E. Perez's home have seen the poster he's owned since he was a teenager. It's titled “Justification For Higher Education,” and that justification is made in a fantasy illustration of a big house with a garage filled with a Ferrari, Porsche, Mercedes and Corvette. Perez's bookshelves are lined with biographies of business icons Bill Gates, Jack Welch, Donald Trump and Richard Branson. Perez turned that poster into reality through a life that seemed to be lifting him toward the status of his tycoon idols—from beginnings that made his story the latest retelling of America's always-inspirational parable of immigrant success. But the baby boy born in Culiacan, the hard-ass capital of Mexico's state of Sinaloa, and raised to an early manhood in El Modena, the humble working-class side of the city of Orange, well, Lou E. Perez has become another millionaire unwilling to speak for himself anymore.
“Lou would love to talk to you—he's always had a great relationship with the press—but you know the questions can be pretty rough and the stories pretty negative in situations like this,” said Tice, the sweet public-relations woman. “Maybe down the line. At this point, though, Lou wanted Lauri to handle it.”
