Let me introduce a simple scenario. You run a large US bank with a market capitalization of $400 billion. You want to reach college students, who will be your primary bank account holders in the future. Good news!worldYou’ve found a company that aims to make the student loan process easier. The company boasts over 4 million users, like 4 million registered emails. This represents 4 million opportunities for new bank customers. You hire a third-party consultant to help with due diligence and ultimately buy the company… $175 million.
Banzai! What a perfectly symmetrical and mutually beneficial arrangement! It’s time to reach out to 4 million students and introduce them to all the wonderful services the bank has to offer.
Launch referral emails and target the entire list of 4 million registered users. Press send. Now all that’s left to do is sit back and count the profits from every new bank account you’re about to open.
I have one small problem.
75% of emails are immediately bounced and never delivered.
This scenario may sound crazy, but it’s exactly the same as JP Morgan Chase (JPM) and the $175 million company it’s allegedly acquiring in 2021 called ‘Frank’. am. Frank.
What is Frank?
Frank was a fintech company that specialized in helping college students with the student loan application process. It’s pretty bad in its natural state, so it’s not a bad idea in theory.
Founded in 2016 by Charlie Javice, a 30-year-old entrepreneur who has been featured in multiple publications, including Forbes’ 30 Under 30. Fun fact: Did you know that you should nominate yourself in the Forbes 30 Under 30? It makes me think about many things. Also the fact that his 30 under 30 on Forbes is headlining the news for the wrong reasons…
We should start arresting anyone in the Forbes 30 Under 30 preemptively. pic.twitter.com/jJAN6RkC06
— Chris Bakke (@ChrisJBakke) January 12, 2023
Why JP Morgan Wanted Frank
In an increasingly competitive world, JPM has made acquisitions to stay ahead of the competition.
Well worth it, I use them for my personal banking and they handled the whole $135 very well.
As for Frank, it was the best company to buy from. A close relationship with the millions (4.2 million) college students who have provided their email addresses, phone numbers and names in the process.
Basically, this was JPM’s marketing strategy. People are very impressionable age when they are in college.
Which bank would you choose? Probably the first person to see it.
So when it came time to open an account, JPM wanted to be at the forefront of Frank’s users’ minds.
So why are they suing Charlie Javis?
And here comes the drama.
JPM alleges that Javice fraudulently sold the company with mostly fake accounts.
As I mentioned at the beginning of this article, when the JPM team finally tried to reach these 4 million Frank users, over 70% of the mail bounced. It’s not due to a technical error. According to JPM, these email addresses did not exist.
allegations in lawsuits
Before I share what the lawsuit really says, on a personal note I need to say that whoever JPM hired to conduct the due diligence of this acquisition should be terminated immediately. there is.
The reason JPM needed Frank was very simple from my point of view. It was to reach 4 million potential customers via email.
Before spending $175 million on an acquisition, you literally just need to make sure the mailing list is genuine.
Here are some interesting, if not incredible, parts of JPM’s lawsuit against Mr. Javice.
First, JPM was clearly shocked by the initial response. This is from their legal team:
“JPMC contacted a random sample of Frank’s provided list, believed to be about 400,000 Frank’s customers, by email and offered to open a checking or savings account with Chase. Of those 400,000 people, Only 103 people clicked to visit Frank’s website.“
At Celebrity Net Worth, we understand website traffic very well, and 103 clicks out of 400,000 email addresses isn’t terrible. In fact, if you have a pulse, you can assume it’s terrible.
But there is always another side. Ms. Javis and her legal team responded:
“Chase captures Frank’s value by pursuing a ill-conceived business plan focused on monetizing student FAFSA® data and running direct marketing campaigns aimed at Frank’s past customers. I lost it. Her proposed business plan ignores the regulatory environment in which the financial aid platform operates, fails to capitalize on Mr Javice’s past successes, and downplays the very skills that JP Morgan Bank hired her for. was More specifically, the new team will primarily focus on mining the personal information of her Frank’s legacy customers to send out marketing emails promoting consumer financial products such as credit cards and personal loans. was placed.“
Basically, they are saying that Chase (JPM) is treating Frank’s customer base merely as a marketing opportunity for their products and should not expect any real response from them as potential customers. increase.
This is a reasonable counter-argument, and it’s been happening all the time to be fair. One company buys another and does it because they don’t understand it, claiming fraud.
However, JPM started digging into Javice’s email records.
What they were said to have discovered, if true, was quite shocking.
According to the lawsuit, Javice and Frank’s chief growth officer, Olivier Amar, had a Zoom call with the director of engineering.
The purpose was allegedly to get the engineers to create a fake list of Frank users. JP Morgan claims Frank’s actual client account was approx. 300,000 At the time.
The engineer refused the job because he didn’t want to go to jail. The lawsuit also states:
“The engineering director questioned whether the creation and use of such a data set was legal, but Javice said that this was perfectly acceptable in an investment context, and that no one would be ‘orange’. He tried to reassure the engineer by claiming he didn’t believe it would be a ‘jumpsuit’. about this project.“
The lawsuit then alleges that Javice hired a New York data science professor. Javice then allegedly provided his scientists with a list of his 293,000 actual customers who submitted financial applications through Frank. His job was to use the information from these customer accounts to essentially invent another of his 4 million (ish) users, which he then sold to JPM in an acquisition.
From the lawsuit:
“Javice is particularly interested in email addresses and asked a data science professor, “Do fake emails look more real if you look at them or use a unique ID?” . he replied[t]It would look a little fake.” At that point, Javice agreed to use a “unique ID” instead.“
Ultimately, this data scientist and the services of a third-party vendor called Enformion allegedly created a list of four million accounts.
According to lawsuit figures, Javis spent about $175,000.
She sold the company for $175 million.
A 99,900% return on investment is very good.
what happens next?
Well, they get into a very long legal battle.
Did Javice actually make up a list of 4 million users and think it would work?
Or did JPM fail this acquisition entirely?