JP Morgan Chase's recent lawsuit against Charlie Javice, the founder and former CEO of Frank, a fintech startup that was sold to JP Morgan for $175 million in 2021, is an excellent example of the importance of proper due diligence.
Javice launched Frank with a new focus on improving the student loan application process and making college more affordable. JP Morgan is now alleging that Javice tricked the bank into buying Frank by creating a list of millions of fake users. JP Morgan’s due diligence team is under fire for a process that appears to have missed what the bank now claims was a major red flag about Javice’s business.
This case highlights the importance of conducting a thorough background check on a company and its owner before investing in or partnering with them. While a company may appear to be successful on the surface, information can easily be manipulated to impress investors. It's important to get a full picture and gather information from external sources such as public records, negative news, and databases to help investors gain a more accurate and comprehensive understanding of a company.
Using a service like CS Business Screen makes it easy to ensure you are not missing any major red-flags. For example, one of our business background checks could have revealed the following:
Our civil search could have revealed Javice was sued in Israel in 2017 for unpaid wages and failing to award her co-founder 10% equity in the company.
Our negative news media search could have revealed that in 2017, the Department of Education accused Frank of potentially misleading customers into believing Frank was affiliated with the U.S. government.
Our negative news media search could have also revealed that in 2020, the FTC sent Frank a warning letter, claiming the company could be misleading students about accessing coronavirus relief funds.
Having all this information in front of you in a concise manner allows you to know all the facts and feel confident about your decision. Using a third party like CS Business Screen makes it easy to conduct a due diligence background check and gain a more accurate and comprehensive understanding of a company and maybe save you $175 million.