JP Morgan says fintech fabricated millions of customers and sues founder

The financial giant acquired the startup in October 2021 and shut it down this week after reportedly discovering millions of fake accounts.

Image source: JP Morgan.

JP Morgan Chase is suing the founder of Frank, a US financial support fintech it bought for $175 million in 2021.

According to the bank, the Marc Rowan-backed fintech falsely claimed to have more than four million customers, when it actually had fewer than 300,000 at the time of the acquisition.

Frank, which has since been discontinued, was a tool that offered to simplify the process of applying for federal financial aid in addition to providing a resource of scholarships and affordable college courses.

The 30-year-old founder and former CEO, Charlie Javice, allegedly created a list of users, complete with “names, dates of birth, phone numbers, postal addresses and email addresses”.

JP Morgan discovered the alleged fake customer accounts when marketing emails were sent to a group of 400,000 customers and around 70 percent were returned.

Frank was pressured to prove his customer base during the due diligence process, according to the bank, when Javice paid a computer scientist $18,000 to invent millions of fake accounts.

“Instead of revealing the truth, Javice initially pushed back on JPMC’s request, claiming she could not share her customer list due to privacy concerns,” the lawsuit states.

“At JPMC’s insistence, Javice chose to invent several million Frank customer accounts out of whole cloth.”

According to the lawsuit, Javice and her growth manager Olivier Amar first asked Frank’s director of engineering to create fake customer details using “synthetic data,” which he asked if the request was legal.

Javice tried to assure the engineer that she was not asking him to engage in illegal conduct, but he was not persuaded and said he would only provide the actual list of data, which was for fewer than 300,000 accounts as of July 2021, it said in the lawsuit.

She then approached an unnamed computer science professor to create 4.265 million users.

Emails listed in the lawsuit show Javice asked the professor to “make sure none of the names selected are real.”

The professor also asked about the physical addresses: “Should I try to dictate them?” and said the fake data “would look scary [him] if [he] should revise it”.

While Javice was working with the professor, Amar allegedly contacted a marketing firm and purchased a list of 4.5 million students for $105,000 that arrived too late to be used to create a fake customer list, but was later used to “deceive” JP further. Morgan and to “cover their tracks” after the acquisition.

Javice has separately filed her own lawsuit against JP Morgan for legal fees she says she incurred while defending herself in internal investigations that began last spring.

Frank is one of a number of fintech acquisitions JP Morgan has made in recent years, along with Nutmeg, Global Shares and Renovite.