Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

businessinsider.com

Post reply on HN
Print view View original

91–100 of 123 posts

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

#91

Post by romellem »

ac29 wrote: post #4

SDNY press release here: https://www.justice.gov/usao-sdny/pr/former-start-ceo-charge...

This is what everyone should be reading, including their attached full complaint.

A key piece of evidence is around whether Frank had 4.25 million users or 300k. Javice (Frank's CEO) alleges JPMorgan Chase (JPMC) is misrepresenting what she provided, saying she merely anonymized the data by making it "synthetic" to a third party for verification to avoid sending PII to JPMC before the deal closed.

Here's the problem though: it (allegedly) wasn't anonymized data - it was fake data, and later when JPMC asked for the real data after the company was bought, Javice bought data for ~4 million students from a third party vendor for ~$100k, combined the data to build the "final database," and JPMC very quickly realized that most of the data was no good.

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

#92

Post by romellem »

pciexpgpu wrote: post #72
skeeter2020 wrote: post #60

Earlier quoted context omitted.

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.

I mean if you are a professor and knowledgeable in how the startup uses the data, it’s hardly justifiable that “oh crap i didn’t know they were using it for illegal purposes”. They were totally complicit allegedly.

This is spoken to [in the full complaint][1]. The data scientist was told Frank really did have 4 million users, and the scientist only needed to generate this "synthetic data" as a way to "anonymize" their "real" data. I.e. the scientist was duped:

  JAVICE told Scientist-1 [...] that she had a database of approximately 4 million
  people and wanted to create a database of anonymized data that mirrored the
  statistical properties of the original database (the “Synthetic Data Set”).
  
  [After JAVICE sends Scientist-1 the data], Scientist-1 understood that the data
  available via the Access Link Email -
  **a data set of approximately 142,000 people** (emphasis added) -
  was a random sample of a larger database which contained data for approximately
  4 million people. In fact, that data represented every Frank user who had at
  least started a FAFSA.
[1]: https://www.justice.gov/usao-sdny/press-release/file/1577861...

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

#93

Post by styren »

jononomo wrote: post #84
mbesto wrote: post #55

Earlier quoted context omitted.

> 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…

What is a DD guy? and what does LOI stand for?

They are both pretty household terms that you could've easily Google.

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

#94

Post by cartermatic »

lordnacho wrote: post #85
mrmcd wrote: post #79

Earlier quoted context omitted.

Previous reporting on this (when the JPM civil suit was filed) mentioned that JPM didn't care about the fafsa forms business at all. They bought them entirely to get a big pile of marketing leads to sign up young people for banking services early in their adult life before they're signed up with other banks, through a brand they're already familiar with. Considering how many "$200 to open a new checking account!!" ju…

Would the bank make 175M from 4M customers?

I think over a long enough term they would. It's about ~$44 a customer (assuming 100% retention). Once they're in the Chase ecosystem, it's easier for Chase to get them to add Chase credit cards, use Chase for a mortgage, interchange fees, minimum balance fees and so on.

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

#95

Post by spartanliving4u »

A_D_E_P_T wrote: post #40
crop_rotation wrote: post #5

The story is really wild. I read the Matt Levine take on it and it immediately reminded me of Theranos (off course not exactly identical, but still).

For what it's worth, the Matt Levine article is here: https://archive.ph/j5JBq And it is a wild story! It's probably going to get the miniseries treatment. The Uber/Theranos/WeWork shows were pretty popular, after all, so I'd bet that a second batch is coming with FTX, Frank, and that Korean guy who went on the lam in Montenegro. Hah.

what Korean guy?

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

#96

Post by lordnacho »

cartermatic wrote: post #94
lordnacho wrote: post #85

Earlier quoted context omitted.

Would the bank make 175M from 4M customers?

I think over a long enough term they would. It's about ~$44 a customer (assuming 100% retention). Once they're in the Chase ecosystem, it's easier for Chase to get them to add Chase credit cards, use Chase for a mortgage, interchange fees, minimum balance fees and so on.

Yeah I guess it's not totally crazy. I can see a couple of overdraft fees being enough.

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

#97

Post by erik_seaberg »

kbos87 wrote: post #12
ChrisMarshallNY wrote: post #7

This exact kind of fraud, is just what AI should be good for. I made 10K fake users for testing the app I'm developing now. I used thispersondoesnotexist.com, and about a half hour's worth of PHP programming, to make an open-ended user generator. I only need 10K users, and it takes about an hour or so to generate them, but I'm sure that this type of thing could be easily scaled. "Hey, ChatGPT, can you give me the SQL…

This has non nefarious uses too. In a b2b context it’s often prohibitively time consuming to generate really good but non-real demo data.

Maybe we need lorem ipsum but for a user profile table. No reason it should be unique if you aren’t trying to learn anything from statistics.

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

#98

Post by tzs »

jononomo wrote: post #84
mbesto wrote: post #55

Earlier quoted context omitted.

> 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…

What is a DD guy? and what does LOI stand for?

In a comment you won't see unless you have "show dead" enabled, he says:

DD = due diligence

LOI = letter of intent

SPA = stock purchase agreement

RWI = reps & warranties insurance

That was in answer to someone earlier asking about those acronyms, but in a rude way that got their comment flagged to death, which also hides replies. I tried vouching for it to revive it so people could see the reply with that explained the acronyms, but it did not help.

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

#99

Post by jjgoldman »

chadash wrote: post #59
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.…

> A 9-figure acquisition sounds like a lot, but consider that this is less than 0.05% of JP Morgan's market cap.

It's far less about the percentage of JPMC's market cap, and more about the fact that a competent due diligence effort would cost less than $250k, which is insignificant against the cost of the acquisition.

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

#100

Post by swores »

rqtwteye wrote: post #86
loandbehold wrote: post #47

Earlier quoted context omitted.

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'…

“ Javice claimed they couldn't provide user personal information "due to privacy concerns”” That’s pretty much what Theranos did. The due diligence people walked away and threw a few hundred million more at Theranos. That’s compares to the due diligence we went through when I worked at a small startup years ago. It was only for a few million but they made us go through hell with all their information request. Seems i…

Isn't it more likely that it's just the bigger the fraud the more likely we are to hear about it, whereas even if 50% of deals the size you went through turned out fraudulent most of them wouldn't make the news and the ones that did might still not make the front page of HN?
Post reply on HN