A post-90s girl defrauded an investment bank of 1 billion yuan.

The fraud case that shocked the venture capital circle has finally come to an end.

Charlie Javice, a post - 90s founder, is about to become a prisoner. Before that, she was a graduate of an Ivy League school, a wealthy and beautiful woman in Silicon Valley, and the founder of the star company Frank. In 2021, she sold the company to JPMorgan Chase for $175 million (approximately 1.2 billion RMB), reaching the peak of her life.

However, no one could have imagined that Javice claimed that Frank had over 4.2 million users, but later it was found that there were actually fewer than 300,000. This fraud caused investment losses for JPMorgan Chase, and the two sides went to court. This week, a verdict was announced - she was sentenced to seven years in prison for defrauding JPMorgan Chase and will appeal later.

During the trial, Javice tearfully admitted her mistake: "This is a decision I will regret for the rest of my life."

The reality is far more absurd than imagined. This farce, which should have been avoided through due diligence, has once again sounded the alarm for the venture capital circle.

JPMorgan Chase Defrauded of $120 Million

Post - 90s Girl Goes to Jail

It all starts with a startup project.

In 2016, Javice founded Frank, a college financial aid platform. In the United States, many college students apply for financial aid, but faced with the cumbersome information - filling process, a slight mistake could lead to application failure. Frank hoped to simplify the loan application process through AI and solve the pain points of students.

However, after several years of entrepreneurship, Javice began to seek to sell the company. Coincidentally, JPMorgan Chase also planned to expand its student loan business at that time, so it targeted Frank for acquisition. As usual, JPMorgan Chase started the due - diligence process.

In order to sell the company at a high price, Javice had the idea of fraud.

According to the court details reported by Bloomberg, Javice asked her employees to create a false dataset, but they refused. Then, she spent $18,000 to hire an external data expert to forge a false user list. She also spent $105,000 to buy a real data package of 4.5 million students from a consulting firm and merged them to create a user list - what the acquirer could see was that Frank had over 4.2 million registered customers.

This became the key factor that convinced JPMorgan Chase to offer a high price. Buying Frank meant that they would quickly open up the Generation Z user market, and millions of young users had the potential to be converted into their lifetime bank and credit card customers.

So, JPMorgan Chase quickly advanced the acquisition process. In August 2021, Javice and JPMorgan Chase reached a $175 million (approximately 1.2 billion RMB) sale agreement. As part of the agreement, JPMorgan Chase hired Javice and other Frank employees. Javice received approximately $21 million in this acquisition, and according to the transaction terms, she would also receive a $20 million retention bonus in the next three years.

It was not until JPMorgan Chase was eagerly looking forward to welcoming the new customers brought by Frank that this global top - tier investment bank noticed something was wrong:

In 2022, JPMorgan Chase sent 400,000 emails to the customer information provided by Frank. As a result, only 28% of the emails were successfully delivered, and only 2,000 recipients opened the emails. Among them, only a very small number of people clicked to view the bank's offers, and finally only 10 new users were acquired. Even more strangely, none of these new account - holders were students. You know, JPMorgan Chase made a large - scale acquisition precisely because it was attracted by Frank's large number of student users.

The great disappointment prompted JPMorgan Chase to conduct an internal investigation. Only then did they realize that they had been carefully deceived - after investigation, the so - called business of Frank, which was deeply involved in the college - age market and had over 4.2 million customers, actually had fewer than 300,000 people.

After the fraud was exposed, JPMorgan Chase fired Javice and sued her in court, and the Frank business was completely shut down. After a complex trial process, in March this year, the jury found Javice guilty of bank fraud, wire fraud, securities fraud, and conspiracy.

This also became a great disgrace in JPMorgan Chase's investment history. JPMorgan Chase CEO Jamie Dimon later regretted it deeply, saying, "This was a huge mistake."

The Entrepreneurship History of an Elite School Graduate

Fake it till you make it

"At the age of 28, I did something that went against my upbringing," Javice confessed in court. If it weren't for this startup, she might have lived a different life.

In 1993, Javice was born into a wealthy family in New York. Her father was a Wall Street investor, and her mother was in the education field. She attended elite private schools since childhood. After graduating from high school, she successfully entered the Wharton School of the University of Pennsylvania, majoring in finance, and completed her studies in three years.

Influenced by her father, Javice had a good understanding of data and the operation of the financial industry from a young age. During college, she founded PoverUp, claiming to provide low - interest loans to poor countries through small student donations and stating that she had raised $300,000 and covered 100 million students globally.

At the same time, she noticed that many college students worked to repay their student loans, so in 2016, she founded Frank and started operating it the following year to help students apply for free financial aid. This project quickly attracted venture capital institutions such as Ground Up and raised $16 million.

For a long time, being the CEO of Frank was Javice's most proud identity. In 2019, at the age of 26, Javice appeared on the cover of Forbes magazine and was included in the "30 Under 30" list, becoming a highly - regarded startup star at that time. Later, she successfully sold the company.

It can be said that only JPMorgan Chase was hurt - with this acquisition, Javice, who was not yet thirty, once had a net worth of nearly $50 million and achieved financial freedom at a young age.

The investors of Frank also managed to exit and secure their profits. Remember on the day the deal was announced, David Stark, a partner at Ground Up, wrote on LinkedIn, "This is a major milestone for us - it is not only our first project exit but also brings real cash returns to our investors. Sharing money is much more fun than asking for it."

Looking back now, there were actually flaws in this talented young girl, but they were overshadowed by her greater achievements in those years. Her previous startup project was accused of problems such as non - registration and non - disbursement of loans. In 2020, Frank was also accused by the US Department of Education of misleading users and was forced to change its website and clarify that it was not a government - affiliated institution.

According to Forbes, when Javice first founded Frank, she told angel investors that her company already had thousands of student users. When her employees expressed concerns about her fraudulent practices, she calmly replied, "Those old - fashioned people won't understand. This is how entrepreneurship works, Fake it till you make it."

In just a few years, it was like watching a building rise, guests gather, and then the building collapse. It's really sad.

Stay in Awe

Looking back at this farce, there are still many lessons for the venture capital circle to ponder.

It's hard for the outside world to imagine that JPMorgan Chase was deceived by such a clumsy method. This is the largest banking giant in the United States, with total assets of $4 trillion, a history of over 220 years, and a total number of employees exceeding 300,000. It has handled many complex transactions but stumbled on Frank.

The $175 million in capital losses may not mean much to JPMorgan Chase, but "it's not very harmful, but extremely insulting."

There is also a detail that, in order to reduce Javice's prison sentence, her defense team tried to focus on JPMorgan Chase's flawed and hasty due diligence.

As the defense lawyer implied, as a bank with a market value of nearly a trillion dollars, JPMorgan Chase should have had a higher ability to identify fraud. But at that time, JPMorgan Chase was more concerned about acquiring Frank before other banks. The implication is that in order to secure the project, they neglected the most basic due - diligence work of investors, which ultimately led to this incident.

In this regard, the judge also criticized their insufficient due diligence and directly said that JPMorgan Chase was stupid, "They also have a lot of responsibility themselves."

It's worth mentioning that Javice once ridiculed Elizabeth Holmes, the founder of Theranos, for being sentenced to 11 years in prison as "absurd." Holmes was the protagonist of the globally - shocking "blood - test - for - cancer" incident. With her groundbreaking detection technology, she raised $900 million in financing all the way and became one of the hottest venture - capital projects in Silicon Valley in those years. But in fact, she swapped equipment and tampered with data to deceive customers and investors. Until the fraud was exposed, she ended up in prison.

Besides having the same ending, they also share many similar labels: elite school students, wealthy and beautiful women in Silicon Valley, young entrepreneurs... All these factors combined attracted investors to flock to them.

In recent years, we have heard many stories about hitting it off with investors and getting investment after just one meal. The primary market has never been short of hot spots. However, the higher the valuation and the more bubbly the projects are, the more fiercely the investment quota is competed for, and the due diligence is often insufficient because everyone is afraid of missing the ticket to the next technological revolution.

But the reality is that valuation and reputation are never moats. A slight misjudgment of the market and technology can evolve into an insurmountable gap, not to mention the bubbles built on falsehoods. Those investors who fail to adhere to their principles are destined to pay a price.

It's still that simple truth - stay in awe.

This article is from the WeChat official account "Investment World" (ID: pedaily2012), author: Wu Qiong, published by 36Kr with permission.