With the recent news of the arrest of Charlie Javice, CEO of a start-up company known as “Frank” (Frank provides a student loan assistance program), the importance of effective Due Diligence prior to any type of transaction comes to the forefront.

Charlie is accused of fraud, because she was in the process of selling the company “Frank” to the great power JP Morgan Chase, however, Charlie allegedly used a data scientist to create a false database, making his buyers believe that they had a platform with more than 4.25 million customers, when the reality was different.

Due to this news, the question arises as to the effectiveness with which the Due Diligence was carried out. Let us remember that this is basically the process by which the party interested in making a purchase, regardless of the object, carries out a study of the background and the current situation of the object of the purchase. This study can vary greatly depending on what is being purchased, it can be simple or extremely complex (review of tax, financial, market, etc.) but in any case, it its essential to carry it out with the seriousness and thoroughness that each investment deserves, in order to avoid, counteract or at least foresee future contingencies.

Now, this conflict could have been avoided if JP Morgan Chase performed a good Due Diligence, because it could have been detected before making the purchase that the database of the 4.25 million customers did not really match the reality of the company. This is a large-scale example of the problems that a poorly done or incomplete Due Diligence can generate. The above applies to any case regardless of the object or the amount, since at the end of the day any investment that is intended to be made is extremely important since it is always made with the purpose of increasing the patrimony in a safe and legal manner.

Definitely the Due Diligence is an essential part for every purchase and sale that takes place, that is why having a good legal advice is vital. At ERP Lawyers we have a team of specialized lawyers in this matter ready to provide you with the best assistance. If you need more information, do not hesitate to contact us at info@erplawyers.com.