Fintech entrepreneur bundled connections for JPMorgan deal ahead of fraud allegations
The story behind this week’s criminal fraud charges against Charlie Javice for allegedly fabricating data to get JPMorgan Chase to buy her startup for $175 million follows a now-familiar pattern.
A charismatic young founder charmed a host of blue-chip establishment figures who offered advice, prestige and broke in funding until the company failed to live up to its promises, and lawsuits and criminal charges followed.
Javice founded Frank to help students apply for college aid in 2017 when she was just 24 years old and received early backing from Apollo’s Marc Rowan as well as Israeli venture capital firm Aleph. Aleph did not respond to a request for comment.
In 2019, she had been named on Forbes’ 30 under 30 list, and attended exclusive networking gatherings at the Code Conference in Arizona. There she struck up a conversation with an investment banker from the boutique firm LionTree who thought she was bright, ambitious and eager to get Frank to the next stage of growth.
She was also relentlessly optimistic, a fact she acknowledged in a 2021 interview with the Planet Economics podcast. “There were definitely times where I painted a rosier picture than things really were,” she said.
When Frank hired LionTree in 2021 to run a sales process, it brought Javice to the attention of JPMorgan Chase and its CEO Jamie Dimon, who were championing a buyout, according to court documents.
But the $175 million deal imploded spectacularly. Javice has been sued by JPMorgan and was charged April 3 with criminal conspiracy to commit wire, bank and securities fraud. Prosecutors allege that Javice represented to JPMorgan that Frank had 4.25 million customers when it only had 300,000.
Attorneys for Javice did not respond to requests for comment. In a countersuit against JPMorgan, Javice has denied the bank’s allegations that she falsified user data. She has put up her Miami Beach apartment to secure a $2 million bail ordered by the court in exchange for her release from custody.
A spokesman for JPMorgan, whose lawsuit also targets another former Frank employee, said the dispute will be resolved through the legal process. LionTree declined to comment.
Legal and business experts say the nature of startups, which require founders to constantly seek additional support, creates a risk of excessive claims.
“When a founder seeks to be acquired or go public, they have a lot to lose if their mistakes are discovered,” said David Hess, a professor of management at the University of Michigan. “A natural tendency towards risk-seeking to avoid loss combined with the trust of the founders . . .[can] cause them to continue down a path that could cross the line into fraud.”
Javice first met Rowan through a social impact investor, and the private equity titan put his own money into Frank in 2017. The two spoke frequently, according to people familiar with the matter. Both were graduates of the Wharton School at the University of Pennsylvania where Rowan serves as chairman of the Board of Advisors. Rowan declined to comment.
JPMorgan’s lawsuit and criminal case focus on the process that led to the $175 million sale. LionTree acted as Frank’s bankers while Sidley Austin acted as Frank’s legal counsel. LionTree declined to comment and Sidley Austin did not respond.
The advisers began with a target list of nearly 100 potential buyers, including Chegg, the publicly traded education technology company that was also a Frank investor, people familiar with the process said. Chegg did not respond to a request for comment.
Most were unwilling to pursue the company due to its limited operating results. Virginia-based CapitalOne bank also showed serious interest in acquiring Frank, people with knowledge of the negotiations said. CapitalOne said it does not comment on deal speculation.
JPMorgan claims in its civil suit that in one case LionTree had pressured Javice to correct information about user values that had been shared with another bidder. After she did, that party dropped out of the sales process, according to the JPM complaint.
Donna Hitscherich, a former banker and attorney who teaches at Columbia Business School, said bankers’ duties are governed by the terms of their engagement letters with clients. These typically do not include signing off on the accuracy of operating or financial data provided by company executives.
“If you hired someone to paint your house, a painter wouldn’t be expected to mow the lawn as well,” Hitscherich said.
“Due diligence is not a cost-free exercise for the buyer or seller. It’s often a function of what particular feature of a target a buyer is looking for and how material a transaction is, both of which can influence how much effort is expended, she added.
For JPMorgan, the September 2021 Frank deal was part of an acquisition spree that came after Dimon told investors the bank intended to be “more aggressive in acquisitions across the board.”
The bank made 45 strategic investments and acquisitions in 2021, most in more than a decade, according to Dealogic data. These included acquisitions of food blog The Infatuation and luxury travel agency Frosch, and buying a controlling stake in Volkswagen’s payments arm as well as a minority stake in Brazilian digital bank C6.
The flurry of deals drew regulatory scrutiny, prompting the Office of the Comptroller of the Currency to launch an audit of JPMorgan’s due diligence process.
The bank acquired Frank as part of its Chase retail banking division with the aim of gaining access to younger customers. Javice, who joined JPMorgan as CEO after the purchase, stood to make $45 million personally from the deal, prosecutors have said.
Dimon personally advocated for the transaction, according to Javice’s countersuit. It quotes him as telling Javice in July 2021 that he thought JPMorgan should “get the deal done”.
When she discussed the acquisition with her new colleagues at the bank, Javice said Dimon had told her she was the future of JPMorgan, according to a person who heard her make the remarks.
Problems emerged months after the deal was closed. JPMorgan found that the delivery and open rates of the emails to Frank customers were far lower than expected. It launched an internal investigation that uncovered what US authorities now claim was a months-long scheme to fabricate the user data.
