What happened?

JPMorgan Chase sued Charlie Javice, Founder and CEO of Frank, a college financial aid start-up acquired two years ago for $175 million, for fabricating its scale of operations and number of users. The lawsuit claims that Charlie Javice duped the bank into believing Frank had more than 4 million customers. The startup had fewer than 300,000 customers, as stated by JPMorgan in its suit. The bank discovered the discrepancy when 70% of emails sent to a batch of about 400,000 Frank customers bounced back.

Why did this happen?

Insufficient forensic due diligence during pre-investment stage.

How this could have been avoided?

Conducting thorough forensic due diligence on the financial and operational data – including cross-checking user data with customer data or implementing authenticity checks on the user data.

Key Takeaway

It is imperative to conduct sophisticated forensic data analytics procedures on operational and financial data to ascertain whether data has been “massaged” or falsified. Data analytics procedures are adept at identifying trends and patterns that indicate falsification, regardless of how deep-rooted or organised data manipulation is.

How DMD can help?

DMD has an innovative Investigations and Governance Advisory practice. Our team has expertise in providing practical & in-depth analysis of complex financial transactions, conducting investigations, implementing and monitoring compliance programs, preparing comprehensive reports, and assisting in litigation and arbitration matters.