7 ms·

JPM Shutters Financial Aid Site Frank, Accuses Founder of Fraud

72 points by hrunt 4y ago

camillomiller 4y ago
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. 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.
- aliswe 4y ago
  Hey, that topic is prohibited!
__derek__ 4y ago
> 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. Yes, it certainly does. Obviously fraud is bad, but this is an astounding failure. I suppose the JPM shareholder lawsuits will be filed soon.
danielfoster 4y ago
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.
- koolba 4y ago
  "Open rate" should be zero for any population that understands technology and cares about privacy. Granted that's a small slice of the real world population, but nobody actually wants people to know that they opened a particular email.
  - snowwrestler 4y ago
    Open rates have actually gone up for some privacy-oriented people because Apple’s “Mail Privacy” reports an open for every person using it, regardless of what they do.
- umeshunni 4y ago
  Their statement, from another article: "After JPM rushed to acquire (Javice's) rocketship business, JPM realized they couldn't work around existing student privacy laws, committed misconduct and then tried to retrade the deal"
- rchaud 4y ago
  Open rate numbers aren't reliable anymore after the iOS privacy update blocking tracking pixels.
  - lcnPylGDnU4H9OF 4y ago
    Pretty sure they were unreliable before that. My email client doesn't load images by default for a reason.
    - deleted 4y ago
      [deleted]
fairity 4y ago
> 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. 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). 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). 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. 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.
- hrunt 4y ago
  > 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. The solution for out-and-out fraud ought to be prison time. This does not sound like a case of "exaggerating metrics"; JPM alleges that the founder knowingly created false metrics and used them to misrepresent the company's value. To be fair, SV is littered with stories of this tactic being successfully used, too. Two that come to mind immediately are Ashley Madison's lady bots and Reddit's use of fake users in its early days to make the community look larger than it was.
  - fairity 4y ago
    Agree that outright fraud should be punished. But, I think it's the more insidious forms of misrepresentation that cause most of the harm. Things like: exaggerating core KPI's by 1-20%, including organic traffic in the denominator of CPA, amortizing sales & marketing expenses, calculating retention based on self-selected cohorts, etc. As a case study, take a look at Talkspace's SPAC (https://finance.yahoo.com/quote/TALK/financials?p=TALK https://finance.yahoo.com/quote/TALK/financials?p=TALK). There's no way this company got to public markets at a $1b valuation without serious misrepresentation of their marketing performance.
dpflan 4y ago
I certainly feels like ZIRP facilitated risky behavior of all kinds, on all sides of deals.
neilv 4y ago
> 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. That sounds like an interesting day for an increasing number of people, starting with whomever saw the bounce numbers first. Was it someone in IT? In Marketing? What were their first thoughts, and how did the information percolate up?
- polonbike 4y ago
  I don't know how it is in the US, but in Europe, it would not be surprising to see a lot of student email address bounce back really quickly. Students graduate, leave/change university, and the email system keeps only current students.
  - marseysneed 4y ago
    In my university they strongly recommended us to have our emails forwarded to an account that would persist
    - brewdad 4y ago
      I graduated 25+ years ago and my student email still works as a forwarder.
    - skeeter2020 4y ago
      How else are you going to get hounded by your alumni association? I finally shook them after probably my 5th move out of college, then my Mom (of all people!) gave them my new address when they called her.
  - rchaud 4y ago
    In that case, you would have the second email address on file and it would be connected to the customer's overall record in the CRM.
- raincom 4y ago
  Founders should have hired the best spammers out there for this task. Spammers run their own domain registrars to create domains on the fly, and create sophisticated mail instances.
hammock 4y ago
>The fact that a young founder What does youth have to do with it? Cf. Mark Zuckerberg, etc
warinukraine 4y ago
Just fake it till you make it guys /s
neilv 4y ago
There are a lot of "Frank" in Crunchbase, but this seems to be the one: https://www.crunchbase.com/organization/frank-financial-aid https://www.crunchbase.com/organization/frank-financial-aid
alasdair_ 4y ago
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. 4.25 million is not “over five million”…
skeeter2020 4y ago
> 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. Data Faker to the rescue!
umeshunni 4y ago
This is interesting (from the Bloomberg article) 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.” 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.
college_physics 4y ago
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) [0] https://www.urbandictionary.com/define.php?term=smile%20apple-itis https://www.urbandictionary.com/define.php?term=smile%20appl...
rchaud 4y ago
In this difficult economic climate, Frank has made the difficult decision to let go of 20% of their fake user accounts /s
cudgy 4y ago
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. Also, the article mentioned that there were 4.5 million users that created accounts. That is different than active users.
no_butterscotch 4y ago
How did the original company "Frank" do what it did? Do they know people at FAFSA?

72 points by hrunt 4y ago

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. 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.

aliswe 4y ago
Hey, that topic is prohibited!

__derek__ 4y ago

> 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. Yes, it certainly does. Obviously fraud is bad, but this is an astounding failure. I suppose the JPM shareholder lawsuits will be filed soon.

danielfoster 4y ago

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.

koolba 4y ago
"Open rate" should be zero for any population that understands technology and cares about privacy. Granted that's a small slice of the real world population, but nobody actually wants people to know that they opened a particular email.
- snowwrestler 4y ago
  Open rates have actually gone up for some privacy-oriented people because Apple’s “Mail Privacy” reports an open for every person using it, regardless of what they do.
umeshunni 4y ago
Their statement, from another article: "After JPM rushed to acquire (Javice's) rocketship business, JPM realized they couldn't work around existing student privacy laws, committed misconduct and then tried to retrade the deal"
rchaud 4y ago
Open rate numbers aren't reliable anymore after the iOS privacy update blocking tracking pixels.
- lcnPylGDnU4H9OF 4y ago
  Pretty sure they were unreliable before that. My email client doesn't load images by default for a reason.
  - deleted 4y ago
    [deleted]

fairity 4y ago

> 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. 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). 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). 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. 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.

hrunt 4y ago
> 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. The solution for out-and-out fraud ought to be prison time. This does not sound like a case of "exaggerating metrics"; JPM alleges that the founder knowingly created false metrics and used them to misrepresent the company's value. To be fair, SV is littered with stories of this tactic being successfully used, too. Two that come to mind immediately are Ashley Madison's lady bots and Reddit's use of fake users in its early days to make the community look larger than it was.
- fairity 4y ago
  Agree that outright fraud should be punished. But, I think it's the more insidious forms of misrepresentation that cause most of the harm. Things like: exaggerating core KPI's by 1-20%, including organic traffic in the denominator of CPA, amortizing sales & marketing expenses, calculating retention based on self-selected cohorts, etc. As a case study, take a look at Talkspace's SPAC (https://finance.yahoo.com/quote/TALK/financials?p=TALK https://finance.yahoo.com/quote/TALK/financials?p=TALK). There's no way this company got to public markets at a $1b valuation without serious misrepresentation of their marketing performance.

dpflan 4y ago

I certainly feels like ZIRP facilitated risky behavior of all kinds, on all sides of deals.

neilv 4y ago

> 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. That sounds like an interesting day for an increasing number of people, starting with whomever saw the bounce numbers first. Was it someone in IT? In Marketing? What were their first thoughts, and how did the information percolate up?

polonbike 4y ago
I don't know how it is in the US, but in Europe, it would not be surprising to see a lot of student email address bounce back really quickly. Students graduate, leave/change university, and the email system keeps only current students.
- marseysneed 4y ago
  In my university they strongly recommended us to have our emails forwarded to an account that would persist
  - brewdad 4y ago
    I graduated 25+ years ago and my student email still works as a forwarder.
  - skeeter2020 4y ago
    How else are you going to get hounded by your alumni association? I finally shook them after probably my 5th move out of college, then my Mom (of all people!) gave them my new address when they called her.
- rchaud 4y ago
  In that case, you would have the second email address on file and it would be connected to the customer's overall record in the CRM.
raincom 4y ago
Founders should have hired the best spammers out there for this task. Spammers run their own domain registrars to create domains on the fly, and create sophisticated mail instances.

hammock 4y ago

>The fact that a young founder What does youth have to do with it? Cf. Mark Zuckerberg, etc

warinukraine 4y ago

Just fake it till you make it guys /s

neilv 4y ago

There are a lot of "Frank" in Crunchbase, but this seems to be the one: https://www.crunchbase.com/organization/frank-financial-aid https://www.crunchbase.com/organization/frank-financial-aid

alasdair_ 4y ago

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. 4.25 million is not “over five million”…

skeeter2020 4y ago

> 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. Data Faker to the rescue!

umeshunni 4y ago

This is interesting (from the Bloomberg article) 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.” 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.

college_physics 4y ago

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) [0] https://www.urbandictionary.com/define.php?term=smile%20apple-itis https://www.urbandictionary.com/define.php?term=smile%20appl...

rchaud 4y ago

In this difficult economic climate, Frank has made the difficult decision to let go of 20% of their fake user accounts /s

cudgy 4y ago

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. Also, the article mentioned that there were 4.5 million users that created accounts. That is different than active users.

no_butterscotch 4y ago

How did the original company "Frank" do what it did? Do they know people at FAFSA?