Fintech deal was a fraud
Change & Con-tinuation
Shut down
Fintech Fake Frank Financial
By Saundra Latham, Editor at LinkedIn News
Updated 2 hours ago
JPMorgan is suing the leaders of Frank, a college-lending startup it bought in 2021 for US$175 million. The bank shut down Frank’s website Thursday and alleges that Frank fabricated millions of customer accounts to help ensure the deal closed. JPMorgan says it expected Frank to have more than 4 million customers, but discovered the company actually had “fewer than 300,000” when it began sending marketing emails, 70% of which bounced back.
- Frank founder Charlie Javice is countersuing JPMorgan, claiming the bank ran into obstacles involving student privacy laws and “manufactured” reasons to fire her in late 2022 so it could avoid paying millions owed to her.
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JPMorgan Chase & Co. is suing the young founder of Frank Financial, a buzzy fintech startup it acquired for $175M. Frank allegedly lied about its scale and success by creating an enormous list of 4 million fake users to entice JP Morgan to buy it.
The founder’s lofty goals to build the startup into “an Amazon for higher education” won support from billionaire Marc Rowan and prominent venture backers including Aleph, Chegg Inc., Reach Capital, GingerBread Capital and SWAT Equity Partners.
Congress had sounded alarms about Frank well before JP Morgan bought it, calling on the FTC to investigate its “deceptive practices.”
The founder is also suing JP Morgan, alleging JP denied her millions in compensation that she was owed. Read the Forbes story from me and Iain Martin here: https://bit.ly/3QC2jbF
JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition
forbes.com • 6 min read
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Lola Bakare
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Wasn’t JP the last bank rocking with Bernie Madoff too? 😬
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Steve Glass
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We are at a point in time where this target market (college-age students) does not use email as its primary communication tool. It’s not uncommon for someone of that age to acquire a “new” email address that their college owns, and abandon the old one (it only ever got SPAM anyway). Of the 70% bounces, I wonder how many were “hard” bounces (email cannot be delivered for a permanent reason, such as it doesn’t exist) or a soft temporary one (mailbox full etc.). JP Morgan got 4 million email addresses, did they get cell phone numbers with text? Twitter handles? TikTok accounts? Snapchat?
Frank Financial may have been mis-leading, I guess we will find out. But if JP Morgan is looking for the value in this transaction, they may be looking in the wrong place.
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Chris Georges
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Did you read the story? They have the smoking gun.
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JPMorgan Chase on Thursday shut down the website for a college financial aid platform it bought for $175 million , CNBC reported.
The country’s biggest bank acquired startup Frank in Sept. 2021 to help it deepen relationships with college students, a key demographic, a Chase executive told CNBC at the time.
Months after the transaction closed, JPMorgan said it learned the truth after sending out marketing emails to a batch of 400,000 Frank customers.
About 70% of the emails bounced back, the bank said in a lawsuit filed last month in federal court.
#startups #banks #mergersandacquisitions
JPMorgan shutters website it paid $175 million for, accuses founder of inventing millions of accounts
cnbc.com • 2 min read
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Louis Meyer
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Fake it until you make it has major risks once the deceit is uncovered.
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David Phillips
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“Fake it til you make it” is so on-brand.
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Darin May
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So…they didn’t do any IT due diligence. Hmm.
<– This, is my shocked face.
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Sophie Hou
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Integrity is the most important trait no matter in which industry. Any knowledge may turn into a weapon harming others if we use it at the wrong place. As data scientists, we are so close to data, we play data but we can’t play people with data.
In response to
JPMorgan bought a fraud. How many more are lurking out there?
JPMorgan Chase & Co., the largest bank in America and, presumably, a fairly sophisticated counterparty, bought student financial aid startup Frank in 2021 for $175 million.
Frank boasted it had 4.25 million users, which, no doubt, Chase was eager to began courting as potential customers for checking accounts, credit cards and the like — winning potentially life-long customers at low(er) cost early in their earning-and-spending adult years.
Only, Frank (allegedly) didn’t really have 4.25 million users, but rather fewer than 300,000.
Chase is arguing in a lawsuit (linked in comments👇) that Frank executives Charlie J. (Charlie Javice) and Olivier Amar hired a data scientist to generate accounts with fake information to make it LOOK like the company had more users than it really did.
The suit also alleges Frank bought records on high school seniors from data broker ASL Marketing for the purposes of falsely inflating Frank’s user numbers.
🤔 So what?
If JPMorgan Chase – a giant bank worth $400+ billion – got tricked by a tiny startup because it skimped on due diligence… how more of these frauds do you think are out there, waiting to be found out?
“Vanity metrics” — particularly counts of loosely defined “users,” but also creative accounting metrics — exploded in popularity just as due diligence fell by the way side in the deal making frenzy of 2020/2021.
Anyone involved in M&A (or acquiring assets in the coming wave of bankruptcies) would be advise to come to the table with a healthy dose of skepticism!
#fintech #fintechnews #mergersandacquisitions
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Paul Campbell
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I really can’t fathom this story. The due diligence required to expose this is minimal. Only 1 in 10 were real (according to this report) so even a random sample of 100 users would throw plenty of red flags. And then there are the financial metrics. 300k users generate quite a different amount to 4m.
Plus complaints had already been raised against Frank suggesting that their product didn’t even help with the student loans/grants it claimed to make easier. Again so many publicly available flags that you could find with a quick google.
They discovered the fraud when they sent out a marketing email and got terrible results. They could have done that as part of the due diligence.
In response to
JPMorgan bought a fraud. How many more are lurking out there?
JPMorgan Chase & Co., the largest bank in America and, presumably, a fairly sophisticated counterparty, bought student financial aid startup Frank in 2021 for $175 million.
Frank boasted it had 4.25 million users, which, no doubt, Chase was eager to began courting as potential customers for checking accounts, credit cards and the like — winning potentially life-long customers at low(er) cost early in their earning-and-spending adult years.
Only, Frank (allegedly) didn’t really have 4.25 million users, but rather fewer than 300,000.
Chase is arguing in a lawsuit (linked in comments👇) that Frank executives Charlie J. (Charlie Javice) and Olivier Amar hired a data scientist to generate accounts with fake information to make it LOOK like the company had more users than it really did.
The suit also alleges Frank bought records on high school seniors from data broker ASL Marketing for the purposes of falsely inflating Frank’s user numbers.
🤔 So what?
If JPMorgan Chase – a giant bank worth $400+ billion – got tricked by a tiny startup because it skimped on due diligence… how more of these frauds do you think are out there, waiting to be found out?
“Vanity metrics” — particularly counts of loosely defined “users,” but also creative accounting metrics — exploded in popularity just as due diligence fell by the way side in the deal making frenzy of 2020/2021.
Anyone involved in M&A (or acquiring assets in the coming wave of bankruptcies) would be advise to come to the table with a healthy dose of skepticism!
#fintech #fintechnews #mergersandacquisitions
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Jason Mikula
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From the suit, it sounds like JPMC didn’t realize this **until they ran a live marketing campaign!!!** Which is crazy.
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Paul Campbell
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I know, it’s ridiculous!
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Richard Turrin
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Best selling author of “Cashless” and “Innovation Lab Excellence” | Consultant | Speaker | Top media source on China’s digital yuan and mobile payments | China AI and tech regs | FOLLOW ONLY NO CONNECTIONS LEFT
The parallels with “fake it till you make it” Elizabeth Holmes of Theranos fame are uncanny! Got to love the strategy of simply making up a new mailing list! Talk about devious!
Jail would be a fitting punishment. Perhaps in a nice white-collar facility with Holmes in the next cell?
In response to
💥💥💥 JPMorgan Chase & Co. Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition.
JPMorgan Chase is suing the 30-year-old founder of Frank Financial, a fintech startup it acquired for $175 million, for allegedly lying about its scale and success by creating an enormous list of fake users to entice the financial giant to buy it.
The lawsuit, which was filed late last year in U.S. District Court in Delaware, claims that Javice pitched JP Morgan in 2021 on the “lie” that more than 4 million users had signed up to use Frank’s tools to apply for federal aid. When JP Morgan asked for proof during due diligence, Javice allegedly created an enormous roster of “fake customers – a list of names, addresses, dates of birth, and other personal information for 4.265 million ‘students’ who did not actually exist.” In reality, according to the suit, Frank had fewer than 300,000 customer accounts at that time.
“Javice first pushed back on JPMC’s request, arguing that she could not share her customer list due to privacy concerns,” the complaint continues. “After JPMC insisted, Javice chose to invent several million Frank customer accounts out of whole cloth.” The complaint includes screenshots of presentations Javice gave to JP Morgan illustrating Frank’s growth and claiming it had more than 4 million customers.
Once the deal went through, JP Morgan asked Frank for its customer list so the bank could begin marketing its products and services to those students, the suit says. Javice sent over a list of data derived from ASL Marketing and another third-party vendor, Enformion, according to the suit. When JP Morgan sent test marketing emails to what it thought were 400,000 Frank customers, the results “were disastrous,” it claims. Only about a quarter of the emails were delivered, and of those, just 1 percent were opened, the suit alleges. As a result of the “unusually poor returns” from that campaign, JP Morgan revisited what it thought it knew about Frank and discovered what it now claims to be fake lists.
Javice’s complaint against JP Morgan said the bank failed to “harness Ms. Javice and Frank’s acumen for attracting a young, diverse new audience to Chase’s services” and instead pursued “poorly conceived business plans” focused on “Frank’s historical customers.”
Link to JPM filing in comment below.
This is an extreme, I wrote few times about neobanks / challenger banks that are claiming thousands, millions of customers that these numbers are to be taken with some caution… Between downloads, accounts completed, accounts funded, accounts active, there is a huge gap… I already live this situation back in 2000 when I saw a Tier 1 EU Bank acquiring an online broker that created a fake customer base and simulating incoming calls from clients when the buyer was visiting the call center… We acquired the online broker ultimately end of 2001. Seems really like we’re back in 2001…
Efi Pylarinou Marcel van Oost Jason Mikula
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Lola Bakare
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Richard Turrin or Trump, Adam Neumann, Bernie Madoff,…any of the MUCH longer list of male CEO fraudsters.
Let’s not turn this into a sexist moment please.
There is no other logical reason to compare her to Elizabeth Holmes.
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Fintech Advisor, Consultant, Speaker | Fmr Goldman Sachs, US Peace Corps Vol.
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JPMorgan bought a fraud. How many more are lurking out there?
JPMorgan Chase & Co., the largest bank in America and, presumably, a fairly sophisticated counterparty, bought student financial aid startup Frank in 2021 for $175 million.
Frank boasted it had 4.25 million users, which, no doubt, Chase was eager to began courting as potential customers for checking accounts, credit cards and the like — winning potentially life-long customers at low(er) cost early in their earning-and-spending adult years.
Only, Frank (allegedly) didn’t really have 4.25 million users, but rather fewer than 300,000.
Chase is arguing in a lawsuit (linked in comments👇) that Frank executives Charlie J. (Charlie Javice) and Olivier Amar hired a data scientist to generate accounts with fake information to make it LOOK like the company had more users than it really did.
The suit also alleges Frank bought records on high school seniors from data broker ASL Marketing for the purposes of falsely inflating Frank’s user numbers.
🤔 So what?
If JPMorgan Chase – a giant bank worth $400+ billion – got tricked by a tiny startup because it skimped on due diligence… how more of these frauds do you think are out there, waiting to be found out?
“Vanity metrics” — particularly counts of loosely defined “users,” but also creative accounting metrics — exploded in popularity just as due diligence fell by the way side in the deal making frenzy of 2020/2021.
Anyone involved in M&A (or acquiring assets in the coming wave of bankruptcies) would be advise to come to the table with a healthy dose of skepticism!
#fintech #fintechnews #mergersandacquisitions
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Jason Mikula
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Paul Campbell
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I really can’t fathom this story. The due diligence required to expose this is minimal. Only 1 in 10 were real (according to this report) so even a random sample of 100 users would throw plenty of red flags. And then there are the financial metrics. 300k users generate quite a different amount to 4m.
Plus complaints had already been raised against Frank suggesting that their product didn’t even help with the student loans/grants it claimed to make easier. Again so many publicly available flags that you could find with a quick google.
They discovered the fraud when they sent out a marketing email and got terrible results. They could have done that as part of the due diligence.
…see more
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Jason Mikula
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From the suit, it sounds like JPMC didn’t realize this **until they ran a live marketing campaign!!!** Which is crazy.
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Paul Campbell
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I know, it’s ridiculous!
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It increasingly appears the buzzy “30 under 30” and “40 under 40” lists have a bad habit of promoting people later accused or convicted of fraud…
JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition
forbes.com • 6 min read
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Founder & CEO, HooLiv || Successful Exit from AllizHealth
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Just when you think you have seen it all.. 😁
JPMorgan Chase & Co. is suing the founder of Frank, a student loan software startup it bought for $175M, for allegedly lying about scale by creating 4M+ fake users…
Now here’s what is amazing:
a) The Developers at the startup refused to create the fake accounts.
b) The founders outsource the creation to a professor at New York City area college.
c) The Profesor not only creates fake users but actually issues an invoice for the work.
d) The company went ahead to honor that invoice and paid the professor $18,000..
And all this for some reason (am guessing since the founder was a Forbes 30 under 30) was missed during the due diligence by JPM… 😊
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Reo R
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” Expect the unexpected “
From this situation, we can learn several lessons:
The importance of thorough due diligence before making a business acquisition.
The dangers of creating fake users or inflating metrics in order to deceive potential investors or buyers.
The importance of ethics and integrity in business, as the developers in this situation refused to create fake accounts.
The importance of clear communication and transparency within a company, as the founders allegedly outsourced the creation of fake users without informing the rest of the team.
The importance of monitoring and tracking the performance of a business post-acquisition, in order to identify any discrepancies or issues that may have been missed during the due diligence process.
The importance of verifying all the data and information given by the founder or the team during the due diligence process.
It is also important to note that these are just allegations in the lawsuit, and we do not have all the information about the case.
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Amit Gupta
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Due diligence is a huge gray area when ‘cult of the wall street or silicon valley founder’ takes precedence over everything. Remember – Elizabeth Holmes or the Altruist Bahamas boy SBF 😜…one created tests out of thin air and other gave away billions!
Apparently the founder, Javice filed in her 30 under 30 submission that the biggest hurdle she faced was “scale” and then subsequently when asked in the Forbes 30 Under 30 submission the worst advice she ever received, Javice answered: “Be patient.”
Strangely, Jamie Dimon the storied CEO JPMorgan Chase & Co. is silent and more importantly upbeat about robust business growth – if only he focussed more on the practices!
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Should the allegations be proven in court, this is a reminder that just about anyone/any company can be defrauded given the right circumstances. That said, it will be interesting to see what the totality of those circumstances were and was due diligence a part of that equation 👇
👉 In a lawsuit filed in the U.S. District Court of Delaware, the bank said Charlie Javice, the founder of the startup Frank, told the bank that more than 4.25 million students created accounts with the app to apply for federal student aid.
👉👉👉 “Javice used ‘synthetic data’ techniques to create a list of 4.265 million fake customers – a list of names, addresses, dates of birth, and other personal information for 4.265 million ‘students’ who did not actually exist. In reality, Frank was nearly 4 million short of its representations,” said the bank.
👉 👉👉 The bank bought Frank for $175 million in a deal that closed in Sept. 2021. The bank now says Frank had fewer than 300,000 customer accounts, as of July 31, 2021.
JPMorgan says it was duped by founder who made up 4 million customers
msn.com • 2 min read
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Kara Osborne
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Wow 😮
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CEO | Rewarding Customers in Fractional Shares | Creating the Ownership Economy
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I just wrote about this tenet this week:
7. Don’t Believe the Hype. Headline Valuations & Vanity Metrics are Compensating For Something Else.
JP Morgan paid $175 million for a FinTech platform. It did not even take the time to check if the users were real.
Forbes covered this founder numerous times (40 under 40 Forbes). Her Twitter account does not exist anymore. She was a Bumble spotlight. This list goes on.
There is a moral hazard in the industry incentivized by cheap money and fueled by a toxic “fake it till you make it” culture amongst startups. To say the market needed a correction is an understatement.
JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition
forbes.com • 6 min read
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Cristina Flaschen
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There is *so much* of this in the startup world. It makes it really hard for honest founders to compete for VC dollars because investors are used to crazy, unrealistic and sometimes impossibly inflated vanity metrics. Since VCs are in the business of making money, as long as the founder is charismatic and they feel that they will be able to raise another round, it’s not always in their best interest to really investigate something like this until it hits the fan during an exit or another major event (cough cough, FTX, cough cough.)
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Zahra Yarahmadi
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When you undervalue due diligence as an investor!
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At some point, VCs will need to be held accountable for their truly ridiculously overestimated valuations based on nonexistent due diligence.
Those who have a strategy of simply following VCs and assuming their diligence is sufficient – well, you get what you get, and you don’t get upset.
Also, this just emphasizes how much bias is in this process. If 4-6% of VC funding goes to women and PoC, and VCs are doing cursory diligence at best – what are all those rejections based on, do we think? 🤔
#VC #funding #strategy #bias #women #PoC #DEI #duediligence #paradigm #jpmorgan #Frank
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Shhhhh Something New Coming Soon
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I expect this will be a landmark case for how tech companies represent their products to investors … (ahem ahem cybersecurity industry.) https://lnkd.in/enykbaQs.
JPMorgan Says It Was Defrauded in $175 Million Purchase of College Site
bloomberg.com • 1 min read
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Larry Chaffin
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Lol. You gotta laugh 😃
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I think more concerning is this wasn’t picked up as part of the due diligence process… if they miss this as part of the due diligence for deals they own, imagine what is being missed as part of the underwriting for IPOs.
JPMorgan Bought College Financial-Aid Platform for $175 Million—and Now Says Most of Its Users Were Fake
wsj.com • Subscription may be required
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Brian Judt
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Whoever at JPM pushed for this purchase should get the chance to donate their salaries back to the firm, for long enough to pay back the loss. This will serve as a lesson to others about due diligence. (And it might expose some highly overpaid people.)
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The Wall Street Journal’s post
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John Taratuta
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A bit harsh, Brian? Fraud is not easy to detect. Sure, someone dropped the ball here. Life will go on . . .
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