JPM Shutters Financial Aid Site Frank, Accuses Founder of Fraud
cnbc.com
cnbc.com
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.
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.
Gaming the karma and other facets of the system was pretty much always a sport.
Then it got popular, and by then it seemed third-party astroturfing/shilling and gaming owned the front page.
4 million fake accounts created with a data scientist's help, then "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."
Nobody did any random sampling and verification earlier? 4 million out of 4.25/4.3M users were fake and you didn't spot it?
1) It takes a lot of time to do this level of diligence
2) Companies aren't comfortable sending over their entire customer database to a purchaser before a deal is closed. And, if they send over a sampling, it doesn't solve for your use case.
2) There are indemnifications included in the final sale agreement that firmly protect the buyer from cases of fraud like this, so it's not actually necessary from the buyer's perspective.
As for indemnifications: those are worth about as much as the paper they are written on when you're dealing with a fraudster, the money is probably long gone by the time you activate those clauses.
There doesn't seem to be a lot of evidence of that if you're talking about LPs
https://www.crainsnewyork.com/awards/40-under-40-2019-charli...
“ When Charlie Javice, 19, and her brother Elie, 18, were growing up in the tony community of Westchester in upstate New York, their parents urged them to volunteer their time to help the town’s less fortunate. Throughout their adolescence, they returned to the local soup kitchen, and each year, they saw the same faces. That was their first lesson in the problem of poverty. “Obviously, there was a broken system if the same people
kept coming back,” said Charlie. She and her brother are now a sophomore and freshman, respectively, at the Wharton School at the University of Pennsylvania, where they’re tackling poverty from a different direction. They’ve assembled a student-run microfinance platform called PoverUP that aims to break the cycle of poverty through capital, research and education, and social engagement.”
https://www.bizjournals.com/philadelphia/print-edition/2011/...
As bill burr said, our athletic roided up guy beat your athletic roided up guy.
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.
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?
"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"
Yes, it certainly does. Obviously fraud is bad, but this is an astounding failure. I suppose the JPM shareholder lawsuits will be filed soon.
4.25 million is not “over five million”…
[0] https://www.urbandictionary.com/define.php?term=smile%20appl...
Also, the article mentioned that there were 4.5 million users that created accounts. That is different than active users.
What does youth have to do with it? Cf. Mark Zuckerberg, etc
Data Faker to the rescue!
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.