How a 30-year-old fintech entrepreneur fooled JPMorgan Chase
In today’s Finshots, we explain how a fintech startup allegedly defrauded one of America’s largest banks.
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The story
Step 1: Shout from the rooftops that the American college system is broken! That students graduate with $30,000 in student loans.
Step 2: Start a fintech business to fix this problem. Target Gen-Z students and help them fill out difficult forms to get scholarships and financial aid.
Step 3: Get on the famous Forbes 30 Under 30 list for fighting for a worthy cause. People will notice you now.
Step 4: Attract the attention of a bank that would like to get hold of your user list. After all, your college-going user list is the perfect future customer for a bank. Catch them when they are young.
Step 5: Finally, and this is the most important step of all — If you don’t have the 4.25 million users to ask for a $175 million buyout, just falsify the customer data!!! Yes, do whatever it takes to trick the bank into thinking the startup was a phenomenal success. And fingers crossed.
Or as tech bros say: “Fake it till you make it.”
That’s what Charlie Javice, the founder of fintech startup Frank, did. Or at least that’s what JPMorgan Chase, the bank that paid $175 million to buy the startup, now claims. It is said to have been rigged by Javice.
Now you must be wondering – how on earth did a massive bank like JPMC miss the red flags before coughing up all the money? Who did all the due diligence to check if Javice’s claims were airtight?
Well, let’s just say that Javice outplayed the banking giant. And made a mockery of its due diligence process.
Before we get into how she did it, we first need to see how JPMC finally realized it might have been tricked.
In January 2022, after the acquisition was done and dusted, the bank decided to spam Frank’s users with a campaign. Probably to get them to buy some financial product that can make money for the bank. So it randomly picked 400,000 users from the list Frank gave them during the due diligence process and sent out emails.
But … the campaign went horribly wrong.
You see, only 28% of emails were delivered. And JPMC typically has a high delivery rate of 99% for its promotions. And even worse – only 1.1% of delivered emails were opened. Compared to 30% for a typical JPMC campaign.
That’s when JPMC sensed something suspicious. An investigation was launched. It was able to obtain all of Charlie Javice’s old emails. And voila, the sham appeared in all its glory.
See, Frank didn’t have the 4 million customers it claimed. It only had a measly 300,000. But you don’t get $175 million for that, do you?
So what did Javice do?
Apparently, Javice first emailed his director of engineering with a link to an article titled “Generating tabular synthetic data using GANs.” The article notes that “[t]The goal is to generate synthetic data that resembles the actual data in terms of statistics and demographics.”
Basically, she wanted to artificially inflate the user base with fake data!
The director was not impressed. He asked if it was even legal to do this. Now you can imagine that Javice’s answer would have been affirmative. She even said that it was standard practice during investments and that no one would end up in an ‘orange jumpsuit’ (meaning jail time) over this.
Right.
But the director was having none of this. He refused to play along (clap, clap) and sent a list of only the real users – only 293,000 of them.
Oh yeah, not even 10% of what Frank claimed to have.
But Javice couldn’t send this to JPMC, right? She wanted $175 million. So she took outside help.
Her colleague and Chief Growth Officer Olivier Amar jumped in. He contacted a company called ASL Marketing, Inc. A company that claimed to have “the most comprehensive, accurate and responsive high school student, college and young adult data available anywhere.” It could give Frank just what it needed!
So Amar paid ASL $105,000. And bought a list of 4.5 million students.
He then tapped another company called Enformion for the email addresses of students who were part of ASL’s list. And paid them $70,000 for their trouble.
Meanwhile, Javice was also cooking up something. She had found a “computer science professor.” A teacher at a college in New York City. And wanted his help to make fake lists.
And that’s when it gets really scandalous!
So Javice asked the professor to generate addresses for the fake students. And the computer science professor emailed Javice asking, “I can’t find addresses in my raw files . . . Should I try to dictate them?
Javice responded, saying, “I just didn’t want the street to not exist in the state.” Initially, the addresses may be fake. But she didn’t want a non-existent XYZ street name to appear. It had to be real.
But the professor replied that ‘real addresses’ might not be feasible.”
So Javice had a brainwave. She found that “[I]If we can’t do real addresses, what’s the best we can do for it? Worse comes to worse[t] we can try a unique ID.”
Initially, she tricked JPMorgan by convincing them that the unique ID on the list was to protect the confidentiality of the student users. That the unique ID was linked to real addresses in the back end. And the bank believed her.
Then came the email ids. And this is even juicier.
Here is an excerpt from JPMC’s complaint.
In an email at 12:56 p.m., the computer science professor, referring to the template Javice sent an hour earlier, asked Javice: “You have the student email marked as ‘specified as unique ID,’ but did we not agree to make fake seg a la ‘[email protected]’? Or do you want a unique ID after all?”
In a reply sent six minutes later at 13:02, Javice asked: “will the fake emails look real with an eye check or better to use unique ID?”
At 1:37 p.m., the computer science professor confirmed “[t]hey will look fake. So let’s use unique ID.”
So yes, the unique IDs reappeared. All under the veil of “privacy”.
It all seemed so real. So when JPMC did the due diligence, it went with flying colours.
And finally, there is the fraudulent invoice after the deed was done.
When the professor sent Javice a bill for $13,300 for the work done, he was quite elaborate. He described that he had performed “college generation” which included creating “first names, last names, emails, phone numbers”.
Pretty honest man!
But Javice freaked out. A sharp auditor would definitely question this.
So she asked him to remove everything. And simply send a one-line invoice that says “for data analysis.” She even sent him a $4,700 bonus. Probably to shut up.
And the professor’s response was, “Wow. Thank you. Here’s the new invoice.” Yes, the scam didn’t matter anymore.
But Javice sweetened the deal further. She even offered the professor a full-time position at JPMC after the acquisition. Hiring the man at the same bank he helped defraud is pretty murderous!
It all sounds too crazy to be true.
But that, folks, is how a Forbes 30 Under 30 winner conned one of America’s biggest banks.
To sum it up – Frank paid a total of $193,000 to ASL, Enformion and the Professor for a list of “fake” email addresses. And then it sold the list to JPMorgan for a whopping $175 million.
Definitely a contender for scam of the year, don’t you think?
Until then…
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PS: Charlie Javice has also filed a lawsuit against JPMorgan Chase alleging that she has not been paid her dues and that the bank’s plan to monetize student data by bombarding them with emails about credit cards and loans was a bad business plan. So make of this what you will.
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