> The fact that a young founder in an industry known for shaky metrics and a “fake it ’til you make it” ethos managed to dupe JPMorgan calls into question how stringent the bank’s due diligence process is.<p>This is actually a pretty rampant and under-discussed problem in SV. Exaggerated metrics in investor pitches are so commonplace that NOT exaggerating your metrics actually puts your company at a real disadvantage (because investors assume you're worse than you portray).<p>The first root cause is that a lot of this lying goes unpunished because investors are afraid to ruin their reputations (founders won't want to work with investors who sue the companies they invest in).<p>The second root cause is that investors on-average still make a lot of money, so they see this behavior as a cost of doing business.<p>I'm not sure what the solution is, but the fine line between positive framing and intentionally misleading investors is crossed way too much, and in the long run, it hurts both the founder and investor community.
This is interesting (from the Bloomberg article)<p>She sent Frank’s Director of Engineering an email with a link to an article entitled “Generating Tabular Synthetic Data Using GANs.” The article notes that “[t]he goal is to generate synthetic data that is similar to the actual data in terms of statistics and demographics.” The article suggests that “it[’]s fairly simpl[e] to use GANs to generate synthetic data where the actual data is sensitive in nature and can’t be shared publicly.”<p>Javice, Amar, and the Director of Engineering then had a Zoom meeting during which Javice and Amar asked the Director of Engineering to help them create a synthetic list of customer data. She asked the Director of Engineering if he could help her take a known set of FAFSA application data and use it to artificially augment a much larger set of anonymous data that her systems had collected over time. The Director of Engineering questioned whether creating and using such a data set was legal, but Javice tried to assure the engineer by claiming that this was perfectly acceptable in an investment situation and she did not believe that anyone would end up in an “orange jumpsuit” over this project.
> <i>JPMorgan said it learned the truth about Frank after sending out marketing emails to a batch of 400,000 customers. About 70% of the emails bounced back, the bank said in a lawsuit filed last month in federal court.</i><p>That sounds like an interesting day for an increasing number of people, starting with whomever saw the bounce numbers first.<p>Was it someone in IT? In Marketing? What were their first thoughts, and how did the information percolate up?
It’s mind-boggling to think that the founder expected to get away with this. Even if real emails had been used for the accounts, an atrociously low open rate still would have exposed the scam.
> The fact that a young founder in an industry known for shaky metrics and a “fake it ’til you make it” ethos managed to dupe JPMorgan calls into question how stringent the bank’s due diligence process is.<p>Yes, it certainly does. Obviously fraud is bad, but this is an astounding failure. I suppose the JPM shareholder lawsuits will be filed soon.
There are a lot of "Frank" in Crunchbase, but this seems to be the one:<p><a href="https://www.crunchbase.com/organization/frank-financial-aid" rel="nofollow">https://www.crunchbase.com/organization/frank-financial-aid</a>
It sounds like both parties were inflating their numbers. When JPM bought the site, they announced it was used by “over five million” applicants, yet in their complaint they say the number was 4.25 million.<p>4.25 million is not “over five million”…
A bad apple here, a bad apple there, pretty soon you are talking about a serious case of bad appleitis [0] (a "disease" when you find anything funny for no reason and cant stop laughing)<p>[0] <a href="https://www.urbandictionary.com/define.php?term=smile%20apple-itis" rel="nofollow">https://www.urbandictionary.com/define.php?term=smile%20appl...</a>
Why shut down the site if it was worth buying in the first place? It still had a half million users. Did JPM even bother looking at the website to see if it was worthwhile? This definitely casts a shadow of doubt on JP Morgan’s ability to vet acquisitions.<p>Also, the article mentioned that there were 4.5 million users that created accounts. That is different than active users.
> After being pressed for confirmation of Frank’s customer base during the due diligence process, founder Charlie Javice used a data scientist to invent millions of fake accounts, according to JPMorgan.<p>Data Faker to the rescue!
I heard this interesting theory: the startup world is so male-centric that many women entrepreneur resort to all sort of schemes to get on par with their privileged male counterparts, including fraud if necessary.<p>The other interesting theory is that media and society like to single-out fraud cases involving female entrepreneurs way more often than they do with men.