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Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

businessinsider.com

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Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#51

Post by altacc »

jjgoldman wrote: post #13

Sounds very clearly that JPMC was defrauded, and at the same time did a very poor job of due diligence in a 9 figure acquisition. How did a financial audit not uncover the dramatic mismatch in actual vs. purported activity? How does a transaction value of $41 per user (x 4.25M users) not translate to an auditable revenue stream? This doesn't look good on either party.

I listened to a documentary about the Crazy Eddie electronic chain, which was fraudulent to the core but passed audits. The ex-CFO made an interesting comment: when large accounting firms do an audit, they're checking what the business has recorded on its accounts adds up, they're not checking if the reality behind the accounts are correct. As long as your books balance, you look healthy.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#52

Post by vkou »

nico wrote: post #30
bamazizi wrote: post #11

Really surprised at lack duedeligenoe on the part of acquirers, JPM team!!! My immediate reaction to when JPM found out they'd be duped after running an 'email campaign' was, hmmm, maybe well deserved, should have done your homework! I want to put the blame solely on the executives, lawyers and team that drove the acquisition forward. Obviously we can open the floodgates of conspiracy theories. Maybe, some from JPM t…

With this, SVB, FTX, it’s pretty clear that whatever paperwork is done for due diligence is just theater. The real due diligence is their networks and reputations. If the people in charge say yes, then the paperwork will support whatever they said already.

That's like saying that because people die in car crashes, seatbelts and airbags are pure theater.

This is a poster-child example for confirmation bias. You don't hear about all the DD that doesn't result in a fraudulent company being purchased.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#53

Post by nradov »

datpuz wrote: post #29

What was the end game here? Is there any universe where someone does something like this and gets away with it?

People get away with lesser versions of this type of scam all the time. Buyers don't want the bad publicity so if the loss isn't material then they just write it off and salvage whatever value they can find. You hear rumors about this kind of stuff that never shows up in the news, and when large companies buy startups it's even kind of expected that the financials are at least a little bit fake. This case was particularly egregious because the loss was material enough that even JPMorgan would have to publicly disclose it rather than sweeping it under the rug.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#54

Post by vkou »

josephd79 wrote: post #10
Scubabear68 wrote: post #3

The gist of what she is alleged to have done: “An internal investigation revealed that Javice and Frank chief growth officer Olivier Amar — referred to as "CC-1" in the federal charges — paid a New York data science professor $18,000 to create nearly 4 million fake accounts in order to juice Frank's user numbers, JPMorgan alleged in its lawsuit. Amar later bought a list of student email addresses from a marketing fir…

So they paid someone 18k to just create a random list of fake email addresses? HAHA stupid

1. It was way more than fake e-mails.

2. It's perfectly reasonable to ask someone to create a 'test' dataset for you. Just don't tell them that you're going full fraud with it.

3. People working for software firms get paid to create test datasets all the time. 18k for an outside one-time consultancy is not an insane number.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#55

Post by mbesto »

loandbehold wrote: post #47
jjgoldman wrote: post #13

Sounds very clearly that JPMC was defrauded, and at the same time did a very poor job of due diligence in a 9 figure acquisition. How did a financial audit not uncover the dramatic mismatch in actual vs. purported activity? How does a transaction value of $41 per user (x 4.25M users) not translate to an auditable revenue stream? This doesn't look good on either party.

Javice interfered in due diligence in a very sophisticated way. JPMC tried to verify user data but Javice claimed they couldn't provide user personal information "due to privacy concerns". In the end Javice was able to convince due diligence team by engaging in multiple layers of fraud. Sure due diligence team could've done a better job, but Javice was a sophisticated adversary. It's not like due diligence team didn'…

> JPMC tried to verify user data but Javice claimed they couldn't provide user personal information "due to privacy concerns".

DD guy here. This is the most plausible explanation.

When you're under LOI there is a lot of back and forth, which ultimately guide how the purchase agreement gets formulated. So if this was the case, then they would have made the trade off of "ok she's not letting us see the list, but we'll make sure the SPA is ironclad about this". Ultimately deals then get some money locked into escrow or RWI to soften the blow of the cost implication.

At the end of the day, let's say you're JPMC and the company that you acquired did exactly what Javice did. You have an SPA that binds you legally (meaning, if they caught lying post close, they'll get sued), how on earth would you think someone was dumb enough to try to get through diligence, then operate the company post close, and NOT expect to be found committing fraud.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#56

Post by mbesto »

TacticalCoder wrote: post #37
fn-mote wrote: post #19

How much due diligence really occurred here? I have no problem with charges being filed, but seriously... it's not like the buyer was some kind of low-budget mom and pop shop or community bank. I'm just not very sympathetic to JPMorgan for being scammed in a situation where being wary should be standard.

> How much due diligence really occurred here? A just question. How much due digilence was done on SBF / FTX by The New-York Times and by the VCs who poured hundreds of millions into a pure fraud?

> How much due digilence was done on SBF / FTX by The New-York Times and by the VCs who poured hundreds of millions into a pure fraud?

NYT isn't an investor, so that's a total non sequitur.

VCs on the other hand...VCs dont do much diligence. And who really cares really? They lost their money, not yours.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#57

Post by paxys »

jjgoldman wrote: post #13

Sounds very clearly that JPMC was defrauded, and at the same time did a very poor job of due diligence in a 9 figure acquisition. How did a financial audit not uncover the dramatic mismatch in actual vs. purported activity? How does a transaction value of $41 per user (x 4.25M users) not translate to an auditable revenue stream? This doesn't look good on either party.

A lot of such deals in the last 5-10 years closed with minimal due diligence because of FOMO.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#58

Post by jcrben »

mbesto wrote: post #56
TacticalCoder wrote: post #37

Earlier quoted context omitted.

> How much due diligence really occurred here? A just question. How much due digilence was done on SBF / FTX by The New-York Times and by the VCs who poured hundreds of millions into a pure fraud?

> How much due digilence was done on SBF / FTX by The New-York Times and by the VCs who poured hundreds of millions into a pure fraud? NYT isn't an investor, so that's a total non sequitur. VCs on the other hand...VCs dont do much diligence. And who really cares really? They lost their money, not yours.

No, they lost limited partners money, which is to a large degree pension money.

Not sure how much VCs coinvest in their own funds but I'm willing to bet most of their retirement funds are not in VC investments.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#59

Post by chadash »

jjgoldman wrote: post #13

Sounds very clearly that JPMC was defrauded, and at the same time did a very poor job of due diligence in a 9 figure acquisition. How did a financial audit not uncover the dramatic mismatch in actual vs. purported activity? How does a transaction value of $41 per user (x 4.25M users) not translate to an auditable revenue stream? This doesn't look good on either party.

A 9-figure acquisition sounds like a lot, but consider that this is less than 0.05% of JP Morgan's market cap. Their market cap is down $6 billion today, and it's not even a particularly notable day.

And it's not like that money is completely gone. JPM will sue and probably recover a very large chunk of it. Say that of the $175 million, they get back $150M, so they are out $25M. It's just not that much money to them. Sure, someone didn't do their job and will probably get fired over this, but Jamie Dimon and the executive suite don't really think about $25M losses.

Re: Frank founder allegedly defrauded JPMorgan out of $175M hit with federal charges

#60

Post by skeeter2020 »

yowzadave wrote: post #46
mostlystatic wrote: post #18

Earlier quoted context omitted.

You pay extra to hide the crime: """ After the August 3, 2021 Zoom meeting, the Data Science Professor returned a signed version of Frank’s NDA. The Data Science Professor’s usual hourly rate was $300. Javice unilaterally doubled the Data Science Professor’s rate to $600. [...] Specifically, on August 5, 2021 at 11:05 a.m., the Data Science Professor provided Javice an invoice for $13,300, documenting 22.17 hours of…

I wonder why the Data Science Professor isn't named/charged as an accomplice. Maybe they are acting as a witness for the prosecution?

it sounds like his initial invoice was quite clear in the work completed, then updated at the client's request. So while you can argue moral grounds for not doing this work, I don't think there's illegality, i.e. conspiracy.
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