Someone Always Gets Stuck With the Check After an Expensive Meal
It would be hard to find a table large enough to seat the major Silicon Valley startups these days, but the gluttony has been underway for twenty and more years. The check always comes, maybe not for a while, but sooner or later the check arrives. Industry insiders know to keep an eye on who heads for the men’s or ladies rooms.
It’s a big check and it looks this time like the least villainous young lady seated at that table is going to get stuck with paying the tab
Charlie Javice, shown above leaving federal court in Manhattan (AP Photo) after being accused of falsifying customer data, is the young lady caught without a chair when the music stopped playing. As Warren Buffett is fond of saying, “On Wall Street you can’t see who is swimming naked until the tide goes out.” While Charlie was busy building her empire, it seems the tide went out.
America is a great big country, made of honest and, for the most part, hard working people. Its extremes are played out on its coasts—the West Coast dreamers, drunk on all that sunshine and investor-capital, where the sky’s the limit and the East Coast, where the stock market bean-counters sooner or later put those dreams to the test. What goes up must come down, from stock-market bubbles to satellites. We forget that at our peril, but there’s always someone dreamy-eyed enough to forget.
We are a nation built on dreams and that’s our most valuable asset.
It's said that young people today have shorter and shorter memories and the evidence is building
Thirty-one year old Sam Bankman-Fried was named 41st richest American, founder and CEO of cryptocurrency exchange FTX and Alameda Research, until it all disappeared down the financial rabbit hole in late 2022. Elizabeth Holmes, thirty-nine, was the darling of venture capitalists until her company, Therano, purported to tell your blood fortune from a finger-prick. Forbes named Holmes the youngest and wealthiest self-made female billionaire in the United States on the basis of a $9-billion valuation of her company. The following year, as another rabbit hole swallowed the company, Forbes revised its estimate of her net worth to zero, while Fortune named her in an article on "The World's 19 Most Disappointing Leaders.”
One might have thought a prominent rag like Fortune could have flexed its reportorial muscles a bit and found a 20th, just to round out the article, but now we have Charlie Javice to do the honors.
Fake it ‘till you make it was Silicon Valley’s invitation to the party and Charlie’s party celebrated a student financial aid placement system called Frank. Why not? Student financial aid was a dark and scary forest of paperwork, with a thousand ways to go wrong and Charlie had Frank to answer the demand.
But along with fingers-crossed and exuberance, startup investors have expectations
What they don’t have much of is patience. These are not the times of Edison and the lightbulb, nor the days of rags to riches. The investor class, those here-today-and-gone-before-sunset dudes hunched over their flash-trades, need constant feeding lest they get nervous. Their hunger never lets up and Frank stretched the truth a bit because Charlie was no dummy and knew how the game was played.
Long story short, Charlie had J.P.Morgan hot to trot to the tune of $175 million in a buyout deal, but the numbers had to fit. Morgan wanted data associated with Frank’s customers. Javice allegedly sought the help of Frank’s director of engineering to generate just a smidgen of synthetic data to make it appear as if Frank had 4.25 million customers.
You’ll find allegedly used a lot here because that’s what lawsuits are all about
But the U.S. Securities and Exchange Commission (SEC) charged Charlie with fraud when that director refused to cooperate and Charlie allegedly paid a data science professor $18,000 to manufacture the data “required to close the deal.”
Well, what’s a 32-yr-old girl to do? Who knew the tide was going out?
For its part, JPMorgan claims that it found out about the alleged fraud when it sent out marketing test emails to a list of Frank’s customers provided by the company and more than 70% of them bounced back. Yeah well, shit happens, even the government’s Secretary of Defense makes that claim.
Meanwhile, Charlie’s been charged with violating the antifraud provisions of the Securities Act of 1933 and Securities Exchange Act of 1934. C’mon guys, she wasn’t even born until 1993.
Allegedly, as part of the acquisition, Javice allegedly received $9.7 million directly in stock proceeds, millions more indirectly through trusts, as well as a contract entitling her to a $20 million retention bonus as a new employee of JPMorgan Chase. Oops, no wonder she has a tear in her eye coming out of the courtroom.
The news from Silicon Valley has not been good lately
Warren Buffett’s receding tide had a hell of an unexpected undertow and entrepreneurial bodies continue to wash up on shore. Industry estimates are that more than 200,000 workers in the tech industry have lost their jobs and the numbers keep piling in. Unemployment claims across the U.S. economy are at an eight-year high. When the party’s getting’ a glow on, acquisitions are the music that keeps everyone dancing and due diligence, even JPMorgan’s, gets a tad loose.
Which is the basis of Charlie’s countersuit. Fair’s fair, you gotta have a counter-suit to play the game
In March, Charlie filed a counterclaim, saying it was “implausible” that JP Morgan “was led to believe Frank had 4.25 million registered users when its website publicly claimed the company had helped more than 350,000 people access financial aid.” She also claims that the bank could not have been misled about the business, pointing to due diligence materials and valuation data.
I suppose if anything comes of this, it will be mostly to the lawyer’s benefit. But I must say I have my fingers crossed for Charlie. She done it by the numbers and the numbers done her in.
Then the economy will improve a bit, as it always seems to do, and we can get back to lying to one another for profit.