JP Morgan says startup founder used millions of fake customers to dupe it into an acquisition
The finance giant is suing the founder of a Mark Rowan-backed startup it bought, claiming the fintech, Frank, had sold the finance giant on a “lie”.
JPMorgan Chase is suing the 30-year-old founder of Frank, a buoyant fintech startup it bought for $175 million, for allegedly lying about its scale and success by creating a huge list of fake users to lure the financial giant into buying it.
Frank, founded by former CEO Charlie Javice in 2016, offers software aimed at improving the student loan application process for young Americans seeking financial aid. Her lofty goal of building the startup into “an Amazon for higher education” was backed by billionaire Marc Rowan, Frank’s lead investor according to Crunchbase, and prominent venture backers including Aleph, Chegg, Reach Capital, Gingerbread Capital and SWAT Equity Partners.
The lawsuit, filed late last year in US District Court in Delaware, alleges that Javice sued JP Morgan in 2021 on the “lie” that more than 4 million users had registered to use Frank’s tool to apply for federal aid. When JP Morgan requested evidence during due diligence, Javice allegedly created a huge list of “fake customers – a list of names, addresses, dates of birth and other personal information for 4.265 million ‘students’ who did not actually exist.” In reality, according to the lawsuit, Frank had fewer than 300,000 customer accounts at the time.
“Javice initially pushed back on JPMC’s request, arguing that she could not share her client list due to privacy concerns,” the complaint continues. “At JPMC’s insistence, Javice chose to invent several million Frank customer accounts out of whole cloth.” The complaint includes screenshots of presentations Javice gave to JP Morgan illustrating Frank’s growth, claiming it had more than 4 million customers.
The same week that JP Morgan filed suit against Javice, Javice filed suit against JP Morgan. The former Frank CEO’s complaint alleged that last spring the bank “began a series of baseless investigations into Javice’s conduct,” and later “produced a bad faith settlement” and “worked to force Javice out of [JP Morgan] organization”, to deny her millions in compensation that she was owed. As part of those investigations, the complaint says, JP Morgan “falsely accused Ms. Javice of misconduct” during and after the Frank acquisition.
“After JPMC rushed to buy Charlie’s rocket business, JPMC realized it could not circumvent existing student privacy laws, committed misconduct and then tried to change the deal,” Javice’s attorney, Alex Spiro, said in a statement sent to Forbes. “Charlie blew the whistle and then sued. JPMC’s latest suit is nothing more than a cover.”
Asked in his 30 Under 30 filing about the biggest hurdle the company faced, Javice said, “Scaling.”
Frank’s head of growth Olivier Amar is also named in the JP Morgan complaint. It alleges that Javice and Amar first asked a top engineer at Frank to create the fake customer list; when he refused, Javice turned to “a computer science professor at a college in the New York City area” to help. Using data from some individuals who had already started using Frank, he created 4.265 million fake customer accounts — for which Javice paid him $18,000 — and had it validated by a third-party vendor at her direction, JP Morgan alleges. The complaint includes screenshots of the professor’s invoices and allegations that Javice went to remarkable lengths to ensure that documentation of this work was either destroyed or altered to avoid raising eyebrows. Amar, meanwhile, spent $105,000 to buy a separate dataset of 4.5 million students from the firm ASL Marketing, according to the complaint. Amar and ASL Marketing have yet to respond to a request for comment.
Bipartisan members of Congress had sounded the alarm about Frank back in 2020, urging the FTC to investigate his “deceptive practices” and issue a temporary restraining order against the company to stop them. “We are concerned that Frank is creating false hope and confusion for students while contributing to unnecessary extra work for financial aid administrators,” the lawmakers, including Reps. Lloyd Smucker and Haley Stevens, wrote in a letter. “We further suspect that the company may use the data collected from deluded students to make money by selling data to third-party advertisers. … This tool does not make it easier for students to get aids and instead appears to be a way for Frank to mine and exploit students’ data for profit.” Frank then received a warning letter from the Consumer Protection Agency. Javice’s attorney Spiro did not immediately respond to a request for comment about the FTC letter.
When JP Morgan acquired Frank in September 2021, Javice, Amar and other Frank employees were hired. Javice graduated from Wharton at the University of Pennsylvania and was appointed Forbes 30 Under 30 list in finance in 2019. She told Forbes saw that Frank had helped 300,000 students apply for financial aid; when she announced the JP Morgan acquisition on LinkedIn two years later, she said it then “served over 5 million students at over 6,000 colleges.” (Ask Javice in his 30 Under 30 submission about the biggest hurdle the company faced, Javice said: “Scaling.”)
“Javice chose to invent several million Frank customer accounts out of whole cloth.”
Since Frank was acquired, she had been a managing director at JP Morgan and oversaw student-focused products at Chase, according to her LinkedIn. She received nearly $10 million as part of the merger, and negotiated an additional $20 million retention bonus to be paid after a later vesting date if she remained in good standing. Amar, who was named managing director of student solutions at JP Morgan, according to his LinkedIn, received about $5 million from the deal and similarly negotiated a $3 million bonus, the complaint said. The matter was previously reported by The Wall Street Journal.
Once the deal went through, JP Morgan asked Frank for his client list so the bank could begin marketing its products and services to those students, the suit says. Javice and Amar sent over a list of data obtained from ASL Marketing and another third-party vendor, Enformion, according to the suit. When JP Morgan sent test marketing emails to what it believed to be 400,000 Frank customers, the results were “disastrous,” it claims. Only about a quarter of the emails were delivered, and of those only 1 percent were opened, the lawsuit claims.
As a result of the “unusually poor returns” from that campaign, JP Morgan revisited what it thought it knew about Frank and discovered what it now claims are fake listings.
“In every aspect of her interaction with JPMC, Javice had a choice between (i) revealing the truth about her startup and accepting Frank’s actual value and (ii) lying to inflate Frank’s value and reaping the rewards of that inflation,” it says in the case. . “Javice chose to lie each time, and the evidence shows that she repeatedly layered fraud upon fraud to deceive JPMC. Javice and Amar used the false customer list and other knowingly false representations of the merger agreement to fraudulently induce JPMC to enter into the merger.”
Javice’s complaint against JP Morgan said the bank failed to “leverage Ms. Javice and Frank’s acumen to attract a young, diverse new audience to Chase’s services” and instead pursued “ill-conceived business plans” focused on “Frank’s historic clients.”
“Chase grossly mismanaged its investment from the start, and it decided it would rather walk back the investment than continue working on it,” Javice’s complaint states.
Amar was fired in October and Javice in November. Several other former Frank employees appear to still be working at JP Morgan, according to LinkedIn.
Asked in Forbes 30 Under 30 As the worst advice she’s ever received, Javice replied, “Be patient.”
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