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The story began when JPMorgan Chase acquired startup Frank. Frank, founded by Charlie Javice in 2016, is an online platform that aims to help students in the United States manage their finances and help them apply for financial aid.
A year after its establishment, Frank raised US$10 million in Series A Education funding. As a startup, Frank had received support from billionaire Marc Rowan, a lead investor, and support from other ventures, including Aleph, Chegg, Reach Capital, Gingerbread Capital, and SWAT Equity Partners.
Seeing the promising potential possessed by Frank, JP Morgan then decided to acquire Frank. By collaborating with Frank, JP Morgan can expand its market reach, especially among the young user base, such as students.
After the acquisition process, Charlie Javice worked as Head of Student Solutions at an American banking company. However, JP Morgan then found things difficult after they acquired the startup.
When integrating the system, JP Morgan found inconsistent data in Frank’s user data. Further analysis of Frank’s user behavior also showed an unusual pattern of activity.
When JP Morgan conducted a deeper investigation, they discovered that Frank had created 4.25 million fake user data on their platform with real users of less than 300,000 customer accounts.
The lie was most substantial after JP Morgan sent marketing emails to Frank’s 400,000 customers, but 70% of those emails were not delivered. In the end, JP Morgan sued Frank for data falsification, resulting in a total loss of US$175 million, or equivalent to Rp2.6 trillion (the amount JP Morgan spent to sue Frank).
The investigation revealed that Charlie Javice and his team had created millions of fake accounts to increase the company’s value. Frank’s executive senior, Olivie Amar, hired a computer scientist and paid him 18,000 dollars to create a fake user database with fake names and addresses, which, of course, Charlie Javice knows.
Investigators also concluded that this fraud was planned and involved the creation of false data on a large scale. As a result, JP Morgan suffered financial losses and damaged the financial institution’s image.
The figure of Charlie Javice suddenly became the spotlight of the media. As the startup’s founder, Frank made waves in the business world after being accused of deceiving JP Morgan; his name is the most sought-after.
Before this fraud case was revealed, Charlie Javice was known as a young businessman with a brilliant career. This teenage woman from Wharton School, University of Pennsylvania, was even included in the Forbes 30 Under 30 list in the Finance category 2019.
Some argue that the factors leading to this fraud may have been the pressure experienced by Charlie Javice and his team to achieve unrealistic growth targets before JP Morgan’s acquisition and that the due diligence process conducted by the JP Morgan team may not have been strict enough to detect any data manipulation.
The scandal between JP Morgan and startup Frank teaches the importance of due diligence before acquiring. In today’s digital era, data is an important asset. Companies need to be careful about the possibility of data manipulation. Strict accounting standards can help prevent financial data falsification.
Also, financial institutions, regulators, and law enforcement need to work more closely together to prevent similar fraud from happening in the future. The startup world is full of uncertainty. It needs to be a reminder that deciding to invest means the company is ready to deal with the risk of failure and fraud.
Writer: Aisyah Banowati
