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Large, mature publicly traded companies should have the best internal control structures. Even more so when they are regularly the most valuable company in the world based on market cap. If a company that large and sophisticated can be the victim of fraud, any company is at risk.

Today we look at Apple and a case from 2022. For most of his time at Apple from 2008 to 2018, Dhirendra Prasad was a buyer in Apple’s global service supply chain, purchasing parts and services from vendors. Specifically, Prasad’s purchasing responsibilities were related to buying parts and supplies for warranty repairs. Having been part of a Fortune 500 purchasing organization, I can tell you that this is typically a role with a lot of discretion.

Prasad started misusing his position as early as 2011. He took kickbacks, inflated invoices, stole parts, and fraudulently charged Apple for parts never delivered. In short, he didn’t hold back. Prasad also worked with a couple of co-conspirators, Robert Gary Hanson and Don M. Baker, each of whom ran vendor companies used by Apple. There are some really interesting bits in this case. First, we have the fraud scheme examples:

In 2013 Prasad had motherboards shipped from Apple’s inventory to Baker’s company CTrends. CTrends then harvested components off the motherboards and sold those components back to Apple with Prasad’s help. Apple bought its own components back from CTrends and Prasad and Baker split the proceeds.

In 2016 Prasad arranged to have components shipped from an Apple warehouse in Nevada to Hanson’s company, Quality Electronics Distributors. Hansen removed the components from their packaging, placed them in new packaging, and shipped them back to Apple. Prasad executed purchase orders for those components and caused Apple to pay the related invoices. In essence, Apple bought its own stolen components back.

These are just a couple of examples. To hide his payments, Prasad set up a shell company to issue invoices to CTrends. CTrends would then remit Prasad’s share of fraudulently obtained cash.

The second interesting piece here is that the IRS got involved. I’m surprised this isn’t seen more often. As a result of his shell company, Prasad claimed hundreds of thousands of dollars in tax deductions and now the IRS wants their money.

Prasad pled guilty to theft of $17 million from Apple. He is required to pay back $17+ million to Apple and $1.8 million to the IRS. As a result, Prasad has also agreed to forfeit $5.4 million in assets and owes $8 million in additional cash restitution. Prasad was sentenced to 3 years in prison and 3 years of supervised release.

As with many of these cases, Prasad was technically convicted of conspiracy to commit mail fraud and wire fraud, but he got the extra bonus of pleading guilty to one count of conspiracy to defraud the United States. This is the tax charge.

None of the many articles I reviewed describe how Prasad was caught, but the press release from the government notes that the prosecution was the result of an investigation led by the Internal Revenue Service. It is possible that the IRS caught on before Apple did.

You don’t see much in the way of straight-up bribery these days. It’s incredibly rare for a politician to be handed a suitcase full of cash in exchange for a vote. We are much more sophisticated these days. Instead of stacks of cash, we engage people and organizations as consultants adding a veneer of respectability to the process. Theoretically, it makes explaining the wire transfers easier, but not always.

Polar Air Cargo Worldwide is a cargo airline jointly owned by DHL and Atlas Air. In April of 2023, the US brought bribery charges against 10 people related to Polar. The list of 10 people includes Polar’s VP of Marketing, VP of Operations, and Senior Director of Customer Service. They allegedly ran a pay-to-play scheme where customers and vendors would pay Polar for shipping and the executives for access. This went on for more than 10 years. From 2009 to 2021 Polar Air’s owners had no idea this was happening.

The way the scheme worked was customers would contract with freight forwarders to arrange shipping. Polar Air would quote a great rate or arrange priority for a shipment. To get that rate or move to the front of the line, the freight forwarders had to make an additional payment to one of several other entities controlled by the executives.

Polar management would instruct forwarders that the additional “consulting fees” were part of Polar’s normal way of doing business. It was compared to a resort fee, a mandatory fee that is either not disclosed or poorly disclosed but is nevertheless, required. The fee amounts were based on the tonnage of cargo being shipped. As part of the indictment, there is an 8-page spreadsheet with rates for one shipment as an example. Fees were typically paid monthly via ACH to entities controlled by the executives, with a spreadsheet detailing how payments should be split.

This scheme applied to vendors too. Polar Air executives arranged favorable terms for vendors secretly controlled by the executives. The situation at Polar was described as “pervasive corruption”. Accountants never want to hear words like “catastrophic failure of internal controls”, but “pervasive corruption” is barely in their vocabulary. FTX was described as “a complete absence of internal controls”, but even it didn’t rise to “pervasive corruption”.

Polar Air is said to have lost as much as $52 million in direct losses and missed revenue. The executives are accused of pocketing about $23 million.

So how did they get caught? This is where the story gets even better. One of Polar’s customers, Cargo On Demand paid a total of $1.6 million in kickbacks from 2016-2021 and got tired of it, so they sued under the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO statutes are often used to target organized crime, which technically I guess this was.

As a result, the CEO of Cargo On Demand has also been indicted for paying bribes to Polar Air. This feels a little like calling the police because your drugs have been stolen.

We’re halfway through the year and it seems like a good time to review some of the unusual indicators of potential fraud we’ve seen. You won’t find most of these in your accounting textbook, but that doesn’t make them less valid. In the tradition of Jeff Foxworthy’s “You might be a redneck” segment, if you have these indicators, you might be involved in fraud. Note that none of this is legal advice except that I strongly recommend that you don’t commit fraud.

1. If your boss uses phrases like “orange jumpsuit” or “no one will go to prison for this”, you might be involved in fraud…and someone is probably going to prison.

2. If your CEO’s significant other is a wannabe pop/rock or hip hop/rap star, you might be involved in fraud.

3. If you work for a cryptocurrency exchange, you might be involved in fraud. I know that’s a bold statement, but come on, there’s been a lot of fraud in failed crypto exchanges. Even the best of them are very opaque when it comes to reporting.

4. If you or someone you know stars on one of the Real Housewives shows, you might be involved in fraud.

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6. If you see ghosts, whether it be ghost cattle, ghost receivables, ghost cash, or ghost services, you might be involved in fraud.

7. If at any point you type or receive messages over text, Whats App, or similar services that include phrases similar to: “If anyone finds out we’re doing this” or “If we get caught”, you might be involved in a fraud.

8. If at any time to feel the need to speak in code like “your 200 chickens have arrived” when in fact you are not referring to chickens, but to something else, like bitcoin, you might be involved in a fraud.

Letter of Credit Fraud

This fraud is a bit unusual in that it deals with letters of credit. It’s a bit more sophisticated than what we’ve seen before and we don’t have the company name. This is a case from the Association of Certified Fraud Examiners so the company and perpetrator are not named. First though, a little background.

 From Wikipedia:

A letter of credit (LC) … is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Letters of credit are used extensively in the financing of international trade, when the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as an underwriter that assumes the counterparty risk of the buyer paying the seller for goods.

When I worked for Darden Restaurants they used LCs extensively when buying seafood from all over the world. An LC mitigates the risk of not receiving payment for the exporter and simplifies the process for the importer because a bank is guaranteeing the payment. 

In our case study, a company defaulted on a loan tied to a letter of credit. The bank hired an auditor to figure out why the loan had really gone unpaid. One thing about an LC, since it’s tied to the international shipping of goods, they typically generate a lot of paperwork for someone to trace. There are the LC and related documents, customs forms, bills of lading, and other shipping documents, etc. 

The auditor dug in and compared submitted paperwork with public records data, loan documents, and statements about the LC’s purpose, and boy did they find a mess. Specifically:

• There were inconsistencies between disbursements and the stated purpose. For example, the borrower dealt in plastics while the supplier specialized in metal rods.
• The supplier (payee) appeared to be a related party to the borrower.
• The supplier’s office and the borrower’s warehouse had the same address.
• During the previous year, 135 draws were made on the letter of credit totaling $73 million.

Further investigation revealed that the borrowing company had not held a business license for three years and the transportation company listed as a shipper in the documents did not exist at the address on the paperwork. 

Ultimately this was straight-up loan fraud, but more sophisticated than a simple take the money and run. There were also allegations of money laundering and that certainly could have been part of this scheme, but nothing beyond the allegation was detailed in the article. Despite the sophistication, the bank missed a lot of red flags. Anti-money laundering efforts like “know your customer” should have helped prevent this. A simple check of business licenses and addresses should have raised red flags.

For businesses that are not banks, it’s still important to know your customer before providing significant credit. It’s not unusual for independent partners of very large firms to try to leverage the credit of their partner inappropriately. One more note, $73 million is a lot of money over the course of a year.

Let’s give a nod to the Real Housewives TV franchise. Few TV shows have exposed as many fraudsters as Real Housewives. It’s even more interesting since that’s not the show’s intent.

We’ve looked at Girardi Keese. Up this time is Joe and Teresa Giudice. This story was all over the news, especially in entertainment news. Joe and Teresa both did jail time, but entertainment news outlets are often thin on details. We’ll try to fill in a few.

Joe was the self-employed owner of G&G Stucco. Over several years Joe and Teresa submitted false W-2s and tax returns as part of multiple mortgage applications, typically indicating that Teresa was employed and listing a large salary. In reality, Teresa was unemployed or working for Joe at a much lower salary.

Documents were submitted to banks via email or U.S. mail resulting in wire fraud and mail fraud charges. These tend to be easy charges to convict on so we them a lot in fraud cases. In total, Joe and Teresa are accused of fraudulently obtaining a little over $4.5 million. This isn’t a complicated fraud, but you can’t accidentally fake W-2s. From my standpoint, the problems here are analogous to issues granting credit to customers.

These frauds took place from 2001-2008. If the mortgage company had properly obtained tax return copies from the IRS, this fraud could have been prevented. My wife used to be a title agent, and in Florida, this is a standard control. Somehow this was missed in New York. Having appropriate controls on customer credit is important. Any business needs to make sure that credit is appropriately matched to the risk of a particular customer. It’s easy to push for the sale or extended terms only to get burned later.

What’s missing in all the news stories and the indictment is the why. What was the end game here? We’ve seen straight-up thefts. People stole money, lived crazy lifestyles, and thought they wouldn’t get caught. Joe and Teresa borrowed money fraudulently and that’s a difference. Lenders know the money is out there and they are going to come looking for it, sooner rather than later. I don’t know what the end game was here. Even the bank fraud we looked at earlier was to try to save a business. Theoretically you save the business and can pay back the loan, there is at least a justification. Joe and Teresa don’t seem to have had much of an end game.

After their fraud came crashing down and they declared bankruptcy, the pair was also accused of hiding assets in bankruptcy. This included misrepresenting the amounts paid by Real Housewives and hiding some of Teresa’s businesses.

Teresa was ultimately sentenced to 15 months in prison. Joe got 41 months and was deported back to Italy following his prison term.

When I started this series, I swore to myself I wouldn’t cover PPP fraud. I’m going to break that promise here. The Paycheck Protection Program (PPP) was a covid emergency loan package for businesses. It came with a series of options to borrow money tied to a few major expenses like rent and payroll. The loans were issued by a participating bank, guaranteed by the federal government, and eligible for forgiveness by the federal government if certain conditions were met.

I swore I wouldn’t cover it because it is such a specific event in time and place that it’s not a recurring risk going forward. Also there was so much PPP related fraud being prosecuted that we could do stories every day. But I think there is a lesson in here, mostly, don’t do bank fraud.

On a personal level I helped a small church navigate getting a PPP loan and I reviewed the documents for the business my wife works for. Both loans were ultimately approved and forgiven, so I’ve seen the process.

Anton Matthews applied for a PPP loan claiming to run a food truck with $103k in gross revenue for 2020. He was granted a loan and managed to actually collect almost $50k in fraudulent loans. The paperwork required for these loans was fairly significant, but there wasn’t much verification of that documentation at the point of the loan. The documentation is being used now to identify and prosecute potential frauds.

There was one big problem with Matthew’s application. He was in jail from November 2016 through October of 2020 and then under home confinement until March of 2021. None of those scenarios are conducive to running a food truck in 202O. Matthew was found out and indicted.

Matthew’s original jail sentence was for distributing crack cocaine. On the day of his indictment in this case, he was also indicted on new cocaine trafficking charges. Fortunately for Matthew, he’s been charged with wire fraud in this case. I say fortunately because defrauding a bank in the U.S. carries a maximum sentence of 30 years in prison.

In this series we covered Kevin Co and his theft of $4.8 million. He was also indicted for fraudulent PPP loans of $500k while awaiting sentencing for this theft of almost five million dollars.

This wasn’t a real corporate fraud. There wasn’t a real company, or a real food truck. But there was real temptation for a lot of small business owners to fudge the PPP numbers for a bigger loan. Part of the allure was that they probably wouldn’t have to pay it back. More money could save the business. They could avoid bankruptcy. Maybe. But it’s surprisingly easy to cross the fraud line for the “right” reasons. This is still the rationalization of the fraudster. It’s also much harder to get back across once you’ve passed that line.

Bank robber, Willie Sutton is often credited as saying: “I rob banks because that’s where the money is.” Sutton stole as much as $2 million. Even with inflation, Edward Rostohar makes Willie Sutton look small-time, and Rostohar only robbed one bank.

Technically, it was a credit union, but we are talking about a lot of money, $40 million to be precise. Edward Rostohar is listed in news reports as alternately a manager or the CEO of CBS Employees Credit Union. The Justice Department press release lists him as a manager, but CEO seems more likely given the time and amounts involved here.

Rostohar also had special knowledge, prior to his job with CBS Employees Credit Union, Rostohar served as an examiner at the National Credit Union Administration (NCUA), a federal agency that regulates credit unions. What makes this fraud special is not the amount, but how long it lasted.

Rostohar began embezzling in 2000. He was finally caught in March 2019. Over almost 20 years Rostohar managed to steal $40 million. He used his position to make online payments to himself, sometimes forging the signature of another employee. He directed funds to shell companies he controlled and paid personal credit cards with credit union funds. Importantly, Rostohar used his experience as an examiner to hide his fraudulent transactions.

The money was spent on gambling, on failed business ventures designed to earn back the money, and on a lavish lifestyle including houses, private jet flights, and a $5k/week allowance for his wife. His business ventures included a coffee shop in Reno that seems to have used more cash than it generated.

Rostohar was caught when an employee stumbled upon a $35k check to Rostohar and with a little digging, found $3.8 paid to the CEO that year alone. Rostohar eventually pled guilty.

It gets worse. The credit union only had assets of about $21 million when the fraud was discovered and they’ve now been sued for $40 million. The losses generated by Rostohar were so bad that the credit union was forced to liquidate and be absorbed by another credit union.

In the interest of transparency, let’s acknowledge that sometimes prosecutors and news reporters get overzealous. Buried in the LA Times version is that Rostohar actually stole about $25 million, but given the length of this fraud, the interest on those funds would have pushed the cash available to the credit union to $40 million. Know that if you commit fraud, the size of it will be exaggerated, and not in your favor.

This was still garden variety payment fraud at the top. Payments were made to the fraudster or their designates. While steps were taken to hide the payments, a simple search of payments to the CEO ultimately uncovered the fraud. But when we look at the Association of Certified Fraud Examiners’ annual report to the nations and see that the average fraud lasts 12 months, realize that this fraud lasted 20 times that.

Twenty years is a long time and $40 million is a lot of money, all from a small credit union outside of LA.

Wirecard is a challenging fraud to explain. It’s a German fraud exposed by a British journalist, and it’s got some fuzzy parts, but I’m going to try.

Wirecard was a payment company. I saw it described as PayPal for Europe, but it was more than that. It seems to be a bit of PayPal, a bit of Venmo, that sort of thing. This fraud also comes with a movie if you want more. The documentary Skandal! is now on Netflix and it covers the Wirecard fraud.

Wirecard started off in 1999 in Munich, and almost went broke. In 2002 it made, Marcus Braun, a former KPMG consultant, its CEO. The company originally focused on payments for companies frequently turned down by traditional finance like gambling and porn sites. In 2005 Wirecard merged with Electronic Business Systems. This is important because it gave them a listing on the Frankfurt Stock Exchange. There’s nothing inherently wrong with this approach, but it avoids the scrutiny of an IPO. Wirecard used its publicly traded status to raise money including one round worth €500 million.

A year later Wirecard bought the e-bank XCOM. This is important because it gave them access to the Visa and Mastercard networks. With this Wirecard set out to become a global payment giant ultimately becoming the card processor for Aldi, Lidl, & several airlines. Wirecard also purchased a large number of Asian payment processors, many of them at alleged inflated values. Multiple articles describe the company’s structure as complex, making it difficult to compare to something like a traditional bank or traditional payment processor.

As it grew Wirecard acquired a prepaid card business from Citibank giving it a U.S. presence and at one point it held informal talks to merge with Deutsche Bank.

Critics kept nipping at Wirecard over its financial reporting, revenue determination, and perceived cash discrepancies. The responses from the company were aggressive, primarily a mix of deflection, legal threats, and smear tactics. The Financial Times took on Wirecard in 2015. A whistleblower dropped allegations in 2018. Core allegations included “roundtripping”, passing money through a 3rd party and bringing it back as revenue, recognizing money held for 3rd parties as revenue, and fraudulent financial statement filings.

Wirecard denied everything. They were audited by EY and insisted they were financially sound. Despite the lingering allegations, they managed to wring €900 million out of venture firm Softbank. KPMG was brought in to do a special audit. Wirecard claimed €1.9 billion in cash in a pair of bank accounts in the Philipines. KPMG indicated in their audit that they were unable to verify much of Wirecard’s revenue. Additionally EY and KPMG were unable to confirm the €1.9 billion in the Philippine banks,

Several months later CEO Braun resigned and Wirecard admitted that the €1.9 billion probably did not exist. This became a giant scandal in Germany. Wirecard was Germany’s answer to a global Silicon Valley firm. It was as if Germany’s Google or Apple was a fraud.

My take, based solely on external reports, is that Wirecard, as an organization, liked the edge. They liked to take shortcuts. The company started on the edge with businesses that were marginalized, like gambling and porn sites. Wirecard then backed into being public with an acquisition instead of going through the due diligence of a public offering. They then bought their way on the Visa and Mastercard network. None of these things in isolation are wrong, but they do seem to show a pattern of shortcuts.

The actual frauds appear to be primarily financial statement and revenue recognition frauds. Namely:

• Acquiring firms and showing their revenue as organic growth instead of acquired. There was no reporting analogous to same-store sales to indicate how the core business was doing. Acquisitions were shown as sales growth.
• Round Tripping – passing payments through third-party processors and bringing the funds back into the business as revenue to inflate financial statement revenues.
• Roughly half of Wirecard’s business was outsourced. They had licensing arrangements with payment processors in countries where they didn’t operate, but they recognized the revenue of those providers as their own.
• Cash held in escrow accounts and managed by trustees was reported as Wirecard cash.

This really looks like started as a tone-at-top problem. A lot of people, possibly including EY, looked the other way. People wanted Wirecard to succeed. It was a source of national pride. Wirecard was also, big, and complex, even dense in scope. It was also mean when it wanted to be. Braun was a charismatic CEO who dressed and acted like Steve jobs. Wirecard also had deep roots in a lot of politicians. Everybody was encouraged to look the other way.

As The Economist notes: “Neither equity analysts, asset managers, auditors nor regulators come out of the story well…everyone with influence over the firm, from board members to auditors and regulators, seems to have been complacent. In a darker version of events, the actions of some may have been complicit, even criminal.”

Ultimately Braun’s case is going to trial. Former Wirecard COO Jan Marsalek disappeared around the time of Braun’s resignation and is a fugitive from justice. He is believed to be hiding in Belarus.

Just to throw a twist into this story, this New Yorker article claims that at its core the Wirecard fraud was not a financial fraud, but was instead a massive money laundering operation primarily benefiting Russian oligarchs. It’s not a crazy theory.

We’ve seen plenty of cases of good people gone bad. Not all fraud at the top starts that way. Carlos Ghosn was by all accounts a great CEO. Tom Girardi was a great lawyer. Temptation can happen to anyone, but if you start by hiring people more likely to commit crimes, you’ll get more crimes. As a suggestion, maybe do a background check for people with financial access.

Prior to starting this series, we talked about Bonnie Sweeten. Bonnie claimed that she and her daughter had been kidnapped. In fact, Bonnie was at Disney World living it up with her daughter using cash and identity stolen from a co-worker. Bonnie got jail time. After getting out of jail, Bonnie got a job at a law firm and was convicted of stealing more than $600k from her employer and family members. Unsurprisingly this led to more jail time. After 8 years, she was released and a friend gave her another opportunity, this time as a bookkeeper of all things. Sweeten promptly forged checks and made fraudulent purchases on the company credit card.

We talked about Angela Phan who was hired as an accountant off of Craig’s list, worked one day, and stole $15k over 18 months using her 1 paycheck. There’s no indication of previous fraud in the news story, but maybe hiring accountants off of Craig’s list isn’t ideal.

Finally, we have today’s story, Business Rapper, Crypto Rapper, alias Razzlekhan, and self-described Crocodile of Wall Street, Heather Morgan. Heather and her husband Ilya Lichtenstein have been accused of trying to launder $4.6 billion in Bitcoin stolen via a 2016 hack of Bitfinex. Note that the pair is not accused of committing the hack, just trying to launder the money. They also weren’t very good at it.

In 2016 119,754 bitcoins were stolen from Bitfinex. At the time they were valued at $71 million. Bitcoin has gone up since then, hence the $4.6 billion valuation now. 94,636 of those Bitcoins have been recovered from the original wallet they were moved to after the heist. Morgan and Lichtenstein are accused of using fictitious identities, multiple accounts, chain hopping, and other techniques to hide the source of the bitcoin, with withdrawals made via Bitcoin ATM. Lichtenstein’s cloud storage account was found to have decryption keys to virtual currency addresses directly tied to the attack.

Lichtenstein is being held without bail while Morgan is free on a $1 million bond and confined to house arrest. But this isn’t a story about crypto laundering. The story is that Heather Morgan now has a new job, while under house arrest, working for an unnamed New York tech firm “in the role of growth marketing and business development specialist.”

Yes, she made a bit of a name for herself with some cringe-worthy rap, but hiring someone on house arrest gives new meaning to working from home. I know it’s a weird job market out there, but you would think with the great resignation and mass tech layoffs, surely there are better options.

If you’re hiring folks into financial roles, do a background check. Actually, do a background check anyway. Lots of non-financial roles carry a risk of fraud or loss including jobs like warehouse work. Plus today’s marketing intern could become tomorrow’s event planner overseeing hundreds of thousands of dollars of marketing spend. Apply due diligence in hiring and don’t buy trouble.

Update 7/10/23: There are a couple of good podcasts on the Crocodile of Wall Street case. The Hacked episode was fun and raised some interesting questions on how the stolen bitcoin would be returned and whether it belongs to Bitfinex or its users. Additionally they mentioned that at the max valuation of $4.6 billion this would have been the largest heist in history surpassing all bank robberies combined in the history of the US.

While trolling the internet, I found an article, now deleted, with the headline “JP Morgan Chase Acquires Frank.” “Oh no!”, I thought, “My friend Frank Vukovits has sold his soul! I hope he got a lot of money!” I kept digging and found an article titled “JP Morgan says Frank was a Fraud“. Clearly, they weren’t talking about Frank Vukovits. He is many things, but fraud is not one of them. He’s also not the type of guy to sell his soul.

Frank was a website that was designed primarily to help students complete student loan applications. It was started by Charlie Javice now 30, based on her struggles to properly complete paperwork. Also part of the Frank team was Olivier Amar,

JP Morgan Chase paid $175 million to purchase Frank in 2021. The theory was simple. Frank purported to have more than 4.25 million college students as users. JP Morgan Chase wanted an opportunity to market their financial products to these college users. It seemed like a win-win until it wasn’t.

There are a pair of lawsuits now with Javice claiming that JP Morgan Chase fired her to avoid an upcoming $20 million payout. She also claims she objected to JP Morgan Chase marketing to these users and that student privacy concerns may prohibit marketing to many of these accounts.

JP Morgan Chase disagrees. JP Morgan argues that they hired a consultant to perform due diligence and the consultant was okay with a list of 4.25 million users. Post-acquisition JP Morgan asked for a list of 400k users to test the market and only 103 users from that list even clicked through to JP Morgan. This abysmal 0.026% click-through rate led JP Morgan to dig deeper into what was going on. Mostly they dug into Frank emails, which became JP Morgan Chase emails post-acquisition and now passed through JP Morgan servers.

The emails showed that before the acquistion Frank didn’t have full information on 4.25 million users, only about 300k users. Much of the rest of their data was incomplete. As a result, Javice decided to make up 4.25 million users based on what little data they had. She went to Frank’s head of engineering to make up user and email records and he refused. That doesn’t happen enough so good for him. “The Director of Engineering questioned whether creating and using such a data set was legal, but Javice tried to assure the engineer by claiming that this was perfectly acceptable in an investment situation and she did not believe that anyone would end up in an “orange jumpsuit” over this project.”

If your boss uses the phrase “orange jumpsuit” you should look for a new job. Javice then turned to a data science professor to generate synthetic data. Discussions like this one highlighted by Matt Levine are particularly damning:

“Regarding creating physical addresses, the Data Science Professor wrote to Javice, “I can’t seem to find addresses in my raw files . . . . Should I attempt to fabricate them?” Javice responded “I just wouldn’t want the street to not exist in the state.” Later, the Data Science Professor determined that “‘real addresses’ may not be doable,” and Javice responded “If we can’t do real addresses what[’]s the best we can do for that?” …

Javice was particularly concerned with the email addresses, asking the Data Science Professor “will the fake emails look real with an eye check or better to use unique ID?” He responded “[t]hey will look fake,” at which point Javice agreed to use a “unique ID” instead.”

While Javice was fabricating 4.25 records to fool the due diligence consultant, Olivier Amar was purchasing 4.5 million student records from a marketing firm. At some point they were going to have to give JP Morgan Chase something resembling real college students. Those records were still short email addresses for about 2.5 million users so Amar turned to the same data science professor and third party to help find the relevant email addresses or generate them synthetically…er make them up. This explains the abysmal response rate to JP Morgan Chase’s email test. This was essentially a spam list with half the emails made up.

As the lawsuits continue, JP Morgan Chase has since shut down the Frank website. Is this fraud? No one has been convicted of anything, but the emails say Frank the website was willing to sell its soul for $175 million.