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Businesses Crime Technology

JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition (forbes.com) 54

Posted by msmash from the closer-look dept.
JPMorgan Chase is suing the 30-year-old founder of Frank, a buzzy 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. Forbes: Frank, founded by former CEO Charlie Javice in 2016, offers software aimed at improving the student loan application process for young Americans seeking financial aid. Her lofty goals to build the startup into "an Amazon for higher education" won support from billionaire Marc Rowan, Frank's lead investor according to Crunchbase, and prominent venture backers including Aleph, Chegg, Reach Capital, Gingerbread Capital and SWAT Equity Partners. 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. [...] Frank's chief growth officer Olivier Amar is also named in the JP Morgan complaint. It alleges that Javice and Amar first asked a top engineer at Frank to create the fake customer list; when he refused, Javice approached "a data science professor at a New York City area college" to help. Using data from some individuals who'd already started using Frank, he created 4.265 million fake customer accounts -- for which Javice paid him $18,000 -- and had it validated by a third-party vendor at her direction, JP Morgan alleges. Amar, meanwhile, spent $105,000 buying a separate data set of 4.5 million students from the firm ASL Marketing, per the complaint.
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JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition More

JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition

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  • JPMorgan needs an tool to make student loans easie (Score:4)

    by Joe_Dragon ( 2206452 ) on Thursday January 12, 2023 @01:05PM (#63203346)

    JPMorgan needs an tool to make student loans easier and they paid 175M for it?

    • Nope. (Score:5, Insightful)

      by rsilvergun ( 571051 ) on Thursday January 12, 2023 @01:35PM (#63203424)
      They paid $175 million for 4 million customers they could drain dry like vampires using our brutal and broken education system.

      That's well worth $175 million (assuming you can keep the Democrats from funding education like we used to in the 90s).

      • Re: (Score:2)

        by Entrope ( 68843 )

        (assuming you can keep the Democrats from funding education like we used to in the 90s)

        Do you mean at 60% today's rate [statista.com]? What would that level of funding change?

        • K-12. Not universities. We yanked all the state & federal funding to universities in the late 90s, that's why tuition shot up. That money had to come from somewhere. Higher education was *always* expensive. You just got to suck on Uncle Sam's teat if you were over 45. The rest got screwed.

          So your chart is meaningless in this discussion. Nice try though.

      • Re: (Score:2)

        by gweihir ( 88907 )

        Yep, they paid for the customers. Obviously. On the other side, how this moron could think that JPM would not notice 4M reasons why they bough that startup suddenly being missing is beyond me.

  • due diligence (Score:4)

    by groobly ( 6155920 ) on Thursday January 12, 2023 @01:12PM (#63203360)

    Apparently their due diligence was not sufficiently diligent.

    • My experience is that due diligence is rarely done very carefully. I remember a case at the company, I used to work for. They sent a team over to London to do due diligence on an acquisition. They spent virtually all their time sightseeing. Of course, it is likely that the senior management had already decided, and they were just going through the motions. The company ended up selling the rights back to the original owner for a fraction of what they paid, after sending millions more trying to make it

    • Re:due diligence (Score:5, Informative)

      by timeOday ( 582209 ) on Thursday January 12, 2023 @01:50PM (#63203490)
      Committing fraud and then saying "you shouldn't have believed me" is not really what due diligence is about. If you buy a company without scrutinizing the finances that's on you, but if it turns out the books were cooked, that's fraud. There really isn't a way to conduct normal business without expecting and enforcing a level of honestly.

    • Re: (Score:2)

      by DarkOx ( 621550 )

      They were LIED to, they asked for numbers as part of the DD and they got deliberately inaccurate information in response - at least if the what is alleged in the suit is found to be true.

      Do blame other fraud victims for being defrauded or is JPM special?

      • It sounds like not just numbers, but data to back them up (that's how I read the summary).

        The due diligence is making sure it's not just numbers, but also those numbers are backed.

      • Failure to take a reasonable effort to verify the data you are given certainly does not excuse the fraudster of fraud, but consider what exposing this would have required from JPM:

        300,000 real users and 4.5 million fake? Have some junior associate select 100 people from this database at random (random is important) and call them up to find out how they like the service. On average they would have gotten 6 real people and 94 fake ones who could not be contacted.

        How hard is that?

        I guess $175 million is too sm

    • Apparently their due diligence was not sufficiently diligent.

      HP got into a roughly similar problem with a company they bought in the previous decade. If I remember correctly, that company falsified sales. I remember that some stock market analyst wrote a research paper that said that the company HP wanted to buy was reporting sales figures that were too high and couldn't possibly be correct, but few people paid attention. The story was that the HP CEO desperately wanted the acquisition to go through so he basically stopped his own people from looking into the o

      • Re: (Score:2)

        by TWX ( 665546 )

        Autonomy.

        https://en.wikipedia.org/wiki/... [wikipedia.org]

        The Autonomy cofounder and CEO, the CFO, and the auditing firm were all found-against in court, with criminal proceedings against the CFO, civil proceedings against the CEO, and civil proceedings against the auditor. The HP CEO pushing the deal was Léo Apotheker, who was in the role for less than a year.

        Apotheker is German. He was there short enough that it makes one ponder if there was some kind of clandestine intent to harm an American-multinational firm.

    • Apparently their due diligence was not sufficiently diligent.

      Due diligence isn't the most you can do, it's a reasonably expected level of diligence.

      Like checking a car's odometer. Taking an engine apart to estimate the age of a used car is not due diligence.
      If you later find records indicating the car is older than you thought, due diligence is the difference between proving fraud or getting fucked.

      It sounds like the bank will have no trouble proving some fraud happened, so it worked. Nobody can say it's just buyer's remorse.

  • AAA ratings for rubbish (Score:3)

    by TheNameOfNick ( 7286618 ) on Thursday January 12, 2023 @01:19PM (#63203380)

    How the turn tables.

  • Big mistake lying to JPMorgan (Score:5, Interesting)

    by 140Mandak262Jamuna ( 970587 ) on Thursday January 12, 2023 @01:21PM (#63203388) Journal
    If you want to lie, you lie to voters. Get elected, they cant do anything. Or lie to FBI and they take forever to do any investigation. Or lie to IRS, they are so swamped by tax cheats they will never find you.

    But JPMorgan? That is stupid. In America JPMorgan lies to others, JPMorgan cheats others. No one dares lie to or cheat JPM.

    They are too big to fail

    They are too big to jail

    • Too true to be funny.
    • He's a Republican that lied about literally everything in his campaign. The GOP didn't care until one of his aids impersonated Mitch McConnell's top aid to get money from a few of the big donors. Now they're calling for his head on a platter.

      Same thing with Bernie Madoff and Liz Holmes. Nobody cares until you mess with the rich. They're the only ones with real protection. They've got tons of special laws to protect investments & property you and me will never even know about let alone own.
    • +1, this is the way.
  • Awww, did JP Morgan make a booboo. And we are supposed to give a shit? After all the decades of crime and specially 2008?
  • "You too?"
  • A data science prof put his career on the line to do a criminal job for $18k ? Holy cap. A prof in that field can make 25k slush money by legit consulting for just a few weeks over the summer. So smart and yet so stupid.

    And the fraudster here thought they could pass off a fake 5-million-name list and pull one over on J - P - fu&*(in - Morgan? That's literally 2% of the entire US population.

    Foolish people working with other foolish people hoping to pull off a heist on one of the most sophisticate

    • Re:So much stupidity (Score:5, Interesting)

      by msauve ( 701917 ) on Thursday January 12, 2023 @02:04PM (#63203532)
      What makes you think the prof knew what they were up to? It may have just been "We need a bunch of fake accounts so we can test how well our system scales...", can you help us out?

      • You do that by filling a database with dummy data. It's also something your system architects and DB admins will do, not a "data scientist", which is something completely different.

        I'm guessing they used real peoples' data, probably students matching the demographics their company caters to, to make it somewhat believable.

        • Re: (Score:2)

          by msauve ( 701917 )
          Whoosh.

          Perhaps you don't do that if you're actually interested in doing scaling tests.

          But, you _do_ do that if you want real looking data to deceive someone, but also want to offer a believable explanation to the person you're asking to do it.

    • A data science prof put his career on the line to do a criminal job for $18k ? Holy cap. A prof in that field can make 25k slush money by legit consulting for just a few weeks over the summer. So smart and yet so stupid.

      And the fraudster here thought they could pass off a fake 5-million-name list and pull one over on J - P - fu&*(in - Morgan? That's literally 2% of the entire US population.

      Foolish people working with other foolish people hoping to pull off a heist on one of the most sophisticated financial firms in the world.

      If the data science prof wasn't already a close friend or something I they were told it was for an internal research project or something. I'm not a fraudster, but I expect that finding random folks willing to join your conspiracy isn't particularly busy.

    • Comment removed based on user account deletion

  • Where's the criminal referral? (Score:3)

    by DeplorableCodeMonkey ( 4828467 ) on Thursday January 12, 2023 @01:58PM (#63203524)

    This should be a slam dunk case for the DoJ. Not sure why they haven't swooped in on this yet because this is such an unambiguous case of fraud.

  • Comment removed (Score:3, Funny)

    by account_deleted ( 4530225 ) on Thursday January 12, 2023 @03:41PM (#63203782)
    Comment removed based on user account deletion

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