JP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An Acquisition
The financial giant is suing the founder of a Mark Rowan-backed startup it acquired, claiming the fintech, Frank, had sold the financial giant on a “lie.”
JPMorgan Chase is suing the 30-year-old founder of Frank, a buzzy fintech startup it acquired for $175 million, for allegedly lying about its scale and success by creating an enormous list of fake users to entice the financial giant to buy it.
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Alexandra S. Levine
Forbes Staff
Iain Martin
Forbes Staff
Jan 11, 2023,06:04pm EST
The financial giant is suing the founder of a Mark Rowan-backed startup it acquired, claiming the fintech, Frank, had sold the financial giant on a “lie.”JPMorgan Chase is suing the 30-year-old founder of Frank, a buzzy fintech startup it acquired for $175 million, for allegedly lying about its scale and success by creating an enormous list of fake users to entice the financial giant to buy 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 goals to build the startup into “ an Amazon for higher education” won support from 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, which was filed late last year in U.S. District Court in Delaware, claims that Javice pitched JP Morgan in 2021 on the “lie” that more than 4 million users had signed up to use Frank’s tools to apply for federal aid. When JP Morgan asked for proof during due diligence, Javice allegedly created an enormous roster 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 suit, Frank had fewer than 300,000 customer accounts at that time.
“Javice first pushed back on JPMC’s request, arguing that she could not share her customer list due to privacy concerns,” the complaint continues. “After JPMC insisted, 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 and claiming it had more than 4 million customers.
The same week JP Morgan filed its suit against Javice, Javice filed a suit against JP Morgan. The former Frank CEO’s complaint claimed that the bank last spring “commenced a series of groundless investigations into Ms. Javice’s conduct,” and later “manufactured a for-cause termination in bad faith” and “worked to force Ms. Javice out of the [JP Morgan] organization,” to deny her millions in compensation that she was owed. As part of those investigations, the complaint said, JP Morgan “falsely accused Ms. Javice of misconduct” during and after the Frank acquisition.
“After JPMC rushed to acquire Charlie's rocketship business, JPMC realized they couldn't work around existing student privacy laws, committed misconduct and then tried to retrade the deal,” Javice’s lawyer, Alex Spiro, said in a statement emailed to Forbes. “Charlie blew the whistle and then sued. JPMC’s newest suit is nothing but a cover.”
Asked in her 30 Under 30 submission about the biggest hurdle the company was facing, Javice said: “Scaling.”
Frank’s chief growth officer 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 approached “a data science professor at a New York City area college” to help. Using data from some individuals who’d 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 claims that Javice went to notable lengths to ensure documentation of this work was either destroyed or altered to avoid raising eyebrows. Amar, meanwhile, spent $105,000 buying a separate data set of 4.5 million students from the firm ASL Marketing, per the complaint. Amar and ASL Marketing did not yet respond to a request for comment.
Bipartisan members of Congress had sounded alarms about Frank back in 2020, calling on the FTC to investigate its “deceptive practices” and issue a temporary restraining order on 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 be using the data collected from misled students to make a profit by selling data to third party advertisers. … This tool does not make it any easier for students to get relief funds and appears instead to be a way for Frank to mine and exploit students’ data for profit.” Frank subsequently received a warning letter from the consumer protection agency. Javice’s lawyer Spiro did not immediately respond to a request for comment about the FTC letter.
When JP Morgan acquired Frank in September of 2021 it brought on Javice, Amar and other Frank staffers as employees. Javice graduated from Wharton at the University of Pennsylvania and was named to the Forbes 30 Under 30 list in finance in 2019. She told Forbes then 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 was then “serving over 5 million students at over 6,000 colleges.” (Asked in her 30 Under 30 submission the biggest hurdle the company was facing, Javice said: “Scaling.”)
“Javice chose to invent several million Frank customer accounts out of whole cloth.”
JP Morgan complaint against Frank's founder and former CEOSince Frank was acquired, she’d been a managing director at JP Morgan overseeing student-focused products at Chase, according to her LinkedIn. She received nearly $10 million as part of the merger, negotiating an additional $20 million retention bonus to be paid after a later vesting date if she remained in good standing. Amar, who was made executive director of student solutions at JP Morgan, according to his LinkedIn, received about $5 million from the deal and similarly bargained for a $3 million retention bonus, the complaint said. The suit was reported earlier by the Wall Street Journal.
Once the deal went through, JP Morgan asked Frank for its customer 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 derived from ASL Marketing and another third-party vendor, Enformion, according to the suit. When JP Morgan sent test marketing emails to what it thought were 400,000 Frank customers, the results “were disastrous,” it claims. Only about a quarter of the emails were delivered, and of those, just 1 percent were opened, the suit alleges.
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 to be fake lists.
“In every aspect of her interactions 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 from that inflation,” the suit says. “Javice chose each time to lie, and the evidence shows that time and again she layered fraud upon fraud to deceive JPMC. Javice and Amar used the Fake Customer List and other knowingly false Merger Agreement representations to fraudulently induce JPMC to enter into the Merger.”
Javice’s complaint against JP Morgan said the bank failed to “harness Ms. Javice and Frank’s acumen for attracting a young, diverse new audience to Chase’s services” and instead pursued “poorly conceived business plans” focused on “Frank’s historical customers.”
“Chase grossly mismanaged its investment from the start, and it decided it would rather walk the investment back than work on it further,” Javice’s complaint said.
Amar was fired in October and Javice, in November. Several other former Frank employees still appear to work at JP Morgan, according to LinkedIn.
Asked in the Forbes 30 Under 30 submission the worst advice she ever received, Javice answered: “Be patient.” |
