Forbes revealed earlier this week that the Wall Street giant is suing 30-year-old Charlie Javice, founder of Frank, and Frank’s chief growth officer Oliver Amar over claims that the pair sought to boost the fintech’s user numbers by creating 4.25 million fake accounts. The startup only had 300,000 customers, according to the lawsuit filed late last year in the U.S. District Court in Delaware.

“Javice first pushed back on JPMC’s request, arguing that she could not share her customer list due to privacy concerns,” the complaint continues. “After JPMC insisted, Javice chose to invent several million Frank customer accounts out of whole cloth.”

The suit alleges that Javice and Amar asked Frank’s director of engineering to create fake customer details after JP Morgan requested details on users as part of the takeover talk. After the engineer refused, Javice was then alleged to have paid a data science professor $18,000 to create millions of fake accounts using “synthetic data.” JP Morgan opened an investigation after test marketing campaigns to Frank’s users following the acquisition were “a disaster,” the suit says.

Forbes

According to some reports, an employee from JPM saw that the list contained exactly 1,048,576 rows, the maximum allowed by Microsoft Excel. Then JPM sent emails to all those in the list, many bounced back.

The question now is, why didn’t you do that during due diligence phase? The data room has been open to you for goodness knows how long and a simple test like that could have saved you USD 175m and your face.

The bigger question is, how do you even come up with the valuation of startups that do not have any assets, no tangible evidence that the business does really work? I remember talking to people doing due diligence, talking from a farm or in the middle of a plantation, or who just come out of a factory. Of course I couldn’t quiz them about the details but journos and due diligence workers must ask, how well do you even know the business? Does it even work/generate cash? Why do you base your valuation or important metric on the number of downloads or users? How much loans have you even disbursed and how much is the repayment rate? Have you watched the business cycle for several months? When are the lean months/period? Why?

I just had a conversation with a bunch of investors and one of them said his hobby is to sit in a restaurant, order food, observe the people, the customer turnaround, how the waitstaff operate…the entire day. For several days, months, etc. He does this for every business they are looking at.

We have a sister company that does due diligence/reputational investigation and they hire freelance journalists and other research professionals–to do the job on the ground because we’re good at that. We also have the inside knowledge/dirt–things that are super important but unpublishable–about companies and their owners after years of being on the ground. I was talking with one of the guys there and with their boss about some personalities or issues that are familiar to me as they had a lot of due diligence requests for this particular company from clients. They know their stuff. They know I know my stuff as well.

I had qualms about some business owners that I interviewed. I had talked to a founder of one tech company that on paper looked so good and would really attract a lot of ESG funds. But since this is just a bootstrapping company, I gave it the benefit of the doubt because what if this company becomes big? I quizzed the founder about how his business works. What is the thesis, why the world needs his company? What is it trying to solve? How are things quantifiable? How do you even give values to such intangible commodity? How does it generate revenue? Why should people use your product/system? Who are your competitors and what makes you different? Can others replicate your technology/system? I had the story published but I left the discretion to the reader if they want to check out this technology or not. I had quizzed the person beyond what was pushed in the press release.

Then I met him in Singapore and the PR kept pushing for this meeting. I talked to him and asked for an update since we last talked. He gave me a glowing account of the people he met, the offers he had, the partnerships he had forged, etc. etc. I asked him about the plans after getting the seed funding, which to me sounded so…ambitious. I took everything in stride and I told him I cannot write an update because I need to see for myself what the real progress he has achieved a year from now. I need proof of concept. I need real backers who had done their due diligence. I think that was the most responsible thing for me to do.

What were my red flags? He has a PR firm even before he has a real business, even before having a physical office in Singapore. Ok, granted that he is moving his business out of his home country but still…it left me uneasy.

I don’t know but I have a thing about having PR before a business is really proven.

So the biggest crime committed by media is that we tend to glorify the ubermensch-type of CEOs through listicles peddled by the likes of Forbes. The Forbes Under 30 had Frank CEO Charlie Javice on their list. This publication also had Harsh Dalal on their list and he turned out to be one big scammer. TechInAsia called out his bullshit because he could not substantiate claims and this publication kept doing their own investigation and published it. He has since been removed from the list.

I searched if we had his company in our database. OMG we did! I brought this up to our compliance team and legal department. After deliberations, we removed the story from our database.

It’s not far-fetched that we could be tricked by smooth-talking people, especially in Southeast Asia where you can conjure up crap from air and sell it like gold. I said always maintain that jadedness in you and not fall into that trap and spot bullshit. Know the sectors you’re covering.

I was reminded by this story I was editing about an Indonesian VC that was so inconsistent that I had to check all the websites (which they didn’t have), I had asked my contacts if they heard about this firm and the business that they claim to be operating, etc etc. I had news stories remotely related to his claims translated so I could understand what was that all about. Everything didn’t make sense and their LinkedIn profiles were laughable. I told my bosses I could not have this story published. That reporter who interviewed the company is no longer with us.

Another particular company stands out. It’s Solar Philippines and the local media has been publishing stories about this wunderkind, Leandro Leviste, who was in his early 20s at that time, was already a CEO of this renewable energy company. The reason why anybody was listening to him was because his mom was a senator. But after interviewing him one time, I found him to be a fluke. He had no substance. I did have one story about his company published and that deal did push through but then you know, I don’t want to…I simply didn’t believe him. I had sources telling me stuff about this company. After he had his company listed on the PSE, this story came out. The story was so powerful that the stock exchange made the company explain what the shit was all about.

Meanwhile, this guy, Joseph Calata, was just out of this world that I never interviewed him. Good thing because he was such a character (and he even invented his own cryptocurrency as payout for his minority shareholders when they got delisted 🤦‍♀️). In the end, the SEC had Calata Corp delisted in 2017 after being found to have violated 29 PSE rules. Calata even threatened to sue my friend for writing facts, things that the PSE already stated were questionable. I put the blame on the investment banks that had been the underwriters of this company’s IPO.

GUYS, DID YOU EVEN DO YOUR DUE DILIGENCE???

But again, it all boils down to the banks’ (JPM and those local ibankers underwriting these questionable IPOs) desire to close a deal. Because there’s this intense pressure to chase deals so due diligence takes a back seat.

So now I do think the first line of defense is the media. If you stop glorifying these under 30 wunderkinds, then you’re doing the world a favor. Do your job of asking the right questions!