By: Carl Thiese
In the high-stakes world of corporate acquisitions, where billion-dollar deals hinge on trust and verification, J.P. Morgan Chase’s purchase of the student financial aid startup Frank for $175 million has turned into a legal firestorm. The bank claims that Frank’s founder, Charlie Javice, fabricated user data to inflate the company’s value, leading to her indictment on fraud charges.
But amid the headlines painting Javice as a fraudster, another question looms: Did J.P. Morgan fail to perform basic due diligence, making this a case of corporate negligence rather than deception?
Javice is accused of inflating Frank’s user numbers, allegedly claiming the platform had 4.25 million students, when the real figure was closer to 300,000 active users. Prosecutors argue she created a fraudulent list to deceive the bank into overpaying for her startup.
J.P. Morgan, in its lawsuit against Javice, claims that when it attempted to verify Frank’s user data post-acquisition, it discovered glaring inconsistencies. As a result, the bank shut down Frank, accusing Javice of orchestrating a scheme to mislead them.
But a closer look at how corporate acquisitions work raises a critical issue: Why didn’t J.P. Morgan, a financial powerhouse with vast resources, detect these discrepancies before the deal was signed?
In acquisitions of this magnitude, a buyer typically conducts extensive due diligence to verify a company’s claims. This involves:
- Data Verification Audits: Independent third-party firms analyze the company’s user database to confirm legitimacy.
- Engagement Metrics Review: It’s not just about how many people sign up—it’s about how many actively use the service.
- Regulatory Compliance Checks: Financial startups, especially those handling sensitive student data, should be subjected to rigorous scrutiny.
- AI & Fraud Detection Tools: Modern data validation tools can detect patterns of artificially inflated numbers.
Had J.P. Morgan performed these steps effectively, it would have quickly uncovered whether Frank’s user base was organic and engaged or artificially inflated.
A key issue in this case is how J.P. Morgan interpreted user data. Many companies claim large audiences, but the distinction between different types of users is critical:
- Website Visitors: Individuals who visit a platform but may never create an account.
- Registered Users: People who sign up but may not be active.
- Engaged Users: Those who actively interact with the platform, logging in frequently, using services, or responding to emails.
By failing to distinguish between these categories, J.P. Morgan may have misjudged Frank’s actual value. A company with millions of visitors isn’t necessarily one with millions of engaged users—something the bank should have recognized.
A Culture of High-Speed Acquisitions
J.P. Morgan’s failure to detect red flags in Frank’s data suggests a broader issue in corporate dealmaking: the pressure to acquire fast.
Large financial institutions often pursue startups aggressively, hoping to gain a foothold in emerging markets. J.P. Morgan was eager to expand its student banking sector, and Frank promised a direct connection to a young, financially active user base; a base that J.P.M. was more than happy to meet early on for potential new financial services.
But in the rush to secure a promising acquisition, due diligence sometimes takes a backseat to ambition. If banks don’t take the time to scrutinize deals properly, they risk being burned—just as J.P. Morgan now claims it was.
Who’s Really at Fault?
If Javice fabricated user data, she should be held accountable—but so should J.P. Morgan for not identifying the discrepancies beforehand.
This case could set a dangerous precedent if J.P. Morgan successfully shifts all the blame onto a single startup founder. Large financial institutions must take responsibility for their own vetting processes. If a bank with J.P. Morgan’s resources can claim it was misled so easily, what does that say about corporate accountability in high-value acquisitions?
This lawsuit will likely shape how financial institutions approach mergers and acquisitions (M&A) going forward. They need to do better data audits. Companies need to implement pre-acquisition user engagement verification rather than relying on reported numbers. they need stronger AI fraud detection. Advanced analytics can flag unusual patterns in user data, making it harder to inflate numbers. And they need more transparency from startups, with founders being upfront about what “users” actually means—whether they are engaged customers or just sign-ups.
If nothing else, this case highlights a glaring weakness in how even the world’s largest banks evaluate digital businesses. Whether Javice is found guilty or not, J.P. Morgan’s failure to conduct proper due diligence is an issue that can’t be ignored.
Carl Thiese is a CPA by academics, who has served as a business consultant at the United Nations and several European embassies. He has studied the growth of the Jewish communities around the world, and consults on management audits for fortune 500 companies. My expertise lies in helping bridge business opportunities with local communities to help governments help people become more self sufficient.
