Jamie Dimon says Frank acquisition “was a big mistake” after JP Morgan claims millions in fake clients

JP Morgan Chase CEO Jamie Dimon admitted the bank made mistakes in its $175 million acquisition of student aid startup Frank after it launched a lawsuit against founder Charlie Javice, alleging she created 4.25 million users to inflate its value of the business. .

Dimon faced questions from analysts about the bank’s fourth-quarter earnings call during the September 2021 deal and lawsuit reported by Forbes earlier this week. Dimon admitted the acquisition was a “big mistake” but says America’s biggest bank had to take risks. “Obviously when you get up to hitting 300 times a year you’re going to have mistakes, and we don’t want our company to be terrified of mistakes and do nothing,” Dimon said.

Wells Fargo Securities analyst Mike Mayo asked Dimon about who would be held responsible for the failed acquisition, and JP Morgan’s plan to increase technology spending to $12 billion by 2022 in an effort to compete with fintechs. “I wonder what that says about the financial discipline of the 15 deals you’ve pursued,” says Mayo, who noted that given JP Morgan’s size, the Frank deal was small — the bank earned Frank’s purchase price in just two days.

Dimon defended JP Morgan’s record of financial discipline, adding that Chase, the bank’s US consumer and commercial arm, was responsible for the deal, but a centralized acquisitions team had done “extensive due diligence” on the startup. “We’re very disciplined, and you see that in a lot of different ways: You see that in our leveraged loan book, the success of our investments, the quality of our products and services, and it’s no different for acquisitions,” Dimon says. “Let me tell you the lessons you’ve learned now that this case is out of litigation.”

Forbes revealed earlier this week that the Wall Street giant is suing 30-year-old Charlie Javice, founder of Frank, and Frank’s chief growth officer Oliver Amar over allegations that the pair tried to inflate the fintech’s user base by creating 4.25 million fake accounts. The startup had just 300,000 customers, according to the lawsuit filed late last year in US District Court in Delaware.

“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 suit alleges that Javice and Amar asked Frank’s director of engineering to create fake customer details after JP Morgan requested details of users as part of the takeover talks. After the engineer refused, Javice allegedly paid a computer science professor $18,000 to create millions of fake accounts using “synthetic data.” JP Morgan opened an investigation after test marketing campaigns to Frank’s users after the acquisition were “a disaster,” the suit says.

Javice’s lawyer denied the allegations. The Forbes 30 Under 30 alum has filed his own lawsuit against JP Morgan alleging the bank tried to “negotiate the deal” after rushing to acquire “rocketship” startup Frank, which offered software to guide young Americans to apply financial help with student loans and tuition.

JP Morgan shut down Frank on Thursday after the lawsuit was made public. Javice had negotiated nearly $10 million as part of the merger, plus a $20 million bonus, and had worked as a CEO overseeing student-focused products. The bank terminated her employment in November.

JP Morgan’s technology spending had already rattled analysts and investors even before details of the Frank lawsuit became public. Dimon had warned analysts last January that “you have to spend a few dollars” to stay ahead of competition from hedge funds such as Citadel, rival lenders and fintechs such as Chime and Affirm.

Dimon spent $2 billion in 2022 alone to upgrade data centers to work with the cloud, and made a series of acquisitions and investments in fintechs around the world, such as payments startup Renovite in September, Ireland’s Global Shares and Greece’s Viva Wallets. JP Morgan shares were up 1.3% by mid-morning after fourth-quarter results beat earnings estimates.