One Firm’s $175 Million Mistake – And How You Can Avoid It

A recent news story describes what appears to be a major failure of due diligence – the kind that can rock shareholder confidence, impact a company’s brand reputation, and devastate people’s careers. But it is also a cautionary tale about the importance of contact validation because, in our view, this situation could have been easily prevented.

JPMorgan recently announced that it was shutting down college financing platform Frank, which it acquired in September 2021 for US $175 million, alleging that a vast majority of its reported 5 million customer accounts were fake. This was discovered when sending an email marketing campaign to 400,000 of these accounts, which reportedly had a significantly higher bounce-back rate of roughly 70%.

In a legal filing, the bank now alleges that Frank’s founder collaborated with a data scientist to create nearly 4 million fake accounts to falsely inflate their account numbers. These inflated account numbers were used to help raise 20M in investment capital and ultimately played into their purchase price of 175M with JP Morgan. . JP Morgan has filed lawsuits, with the outcome to be determined. This embarrassment could have been avoided using account validation tools during their due diligence phase.

Fake customers – a preventable problem

One of the more frustrating things about this story is that it could have been easily prevented with current validation technology.

Nearly all of us leave genuine digital footprints about our lives in publicly accessible databases – even the notoriously mobile student population. For example, we have addresses on file with postal authorities, cellular and landline phone ownership records, email addresses, and more. And with cloud-based SaaS tools connected to these databases, it is now more possible than ever to validate whether people and their contact data are real or not.

Let’s start with email, which was the marketing channel of choice in this situation. Our DOTS Email Validation service, of course, checks for obvious problems such as garbage, vulgar or misspelled (like “” for Gmail) addresses, as well as known spammers and spam traps. But our email checking service also goes an important step further – it “pings” these addresses to see if they exist and receive email at the server level.

Now, let’s take it a step further. Bogus people are unlikely to have their names tied to legitimate USPS or global addresses. They won’t show up as the owner on their phone line. And their data won’t cross-reference across authoritative contact databases.

That’s where a service like our DOTS Lead Validation comes in – it checks over 130 data points and returns quantitative Certainty and Quality scores, to let you know how likely these accounts are to be genuine, accurate and up-to-date. In JP Morgan-Frank’s case, if during due diligence, the accounts were verified through our validation service, much of that contact database would have  been flagged as suspicious.

In short, whether detecting fake customers at the time creation, performing an internal audit to clean up your marketing database or performing due diligence, fake customers can be easily discovered and avoided – with the help of the right kind of automation.

What this means for you

Perhaps your next business acquisition – or marketing campaign – will involve $175 million dollars. How important is lead and customer validation for you?

The answer is, very.

Here’s why. Validating your leads, at the time of data acquisition or use, helps you do things like:

  • Guard against fraud by flagging suspicious names, fake mailing addresses, non-existent email addresses, malicious IP addresses and more.
  • Avoid getting blacklisted by entire organizations for using questionable email addresses.
  • Weed out people who registered using names like “Donald Duck” to get free marketing goodies.
  • Steer clear of stiff compliance penalties for violating data privacy laws.
  • Keep your sales team happy by passing them actionable, high-quality leads.

In short, a little automated data hygiene can save you a LOT of money. How much? Our friendly product experts are always happy to help you evaluate this – just get in touch and we’ll respond within 90 minutes or less. But in this very public case, the answer is as much as $175 million dollars and a lot of embarrassment.

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