JPMorgan paid $175 million for hot startup. Now it claims its CEO faked 4 million customers.
Charlie Javice founded her company, Frank, in 2017, when she was 24 and a recent Ivy League graduate, with the goal of helping students apply for college grants. By 2021, she was hailed as a business visionary and had sold her startup to JPMorgan Chase for $175 million.
Now, JPMorgan claims that Frank’s inspirational story of helping more than 5 million students get through college was largely a fabrication, according to a lawsuit filed by the bank last month. Javice allegedly paid a data science professor $18,000 to invent a list of more than 4 million fake student names to convince the financial giant to shell out the purchase price, the lawsuit alleges.
The allegations are the latest case of a highly acclaimed millennial founder accused of falsifying the truth to score financially, from FTX’s Sam Bankman-Fried to disgraced Theranos founder Elizabeth Holmes. Meanwhile, Frank, who was once expected to help JPMorgan expand its reach among college students, has now been shut down.
“[T]To make money, Javice chose to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration in order to induce them [JPMorgan] Frank for $175 million,” the bank claims in the complaint.
Alex Spiro, an attorney for Javice, denied the allegations in a statement emailed to CBS MoneyWatch. JPMorgan “knows what they have filed is retaliatory and misleading,” he said. “They received all the data upfront for the purchase from Frank and Charlie Javice highlighted the limitations imposed by student privacy laws during due diligence.”
He added: “When [JPMorgan] Unable to circumvent these privacy laws after purchasing Frank, JPMC began twisting the facts to cover their tracks, falsely accusing Charlie Javice of reversing the deal.”
JPMorgan, which said Javice no longer works for the company, said it is seeking unspecified penalties and damages in court.
“Proven Acquisition Machine”
The lawsuit details why JPMorgan was attracted to Frank when Javice, a University of Pennsylvania graduate, approached the bank in the summer of 2021. She touted the startup’s 4.25 million users, students who had started or completed the Free Application for Federal Student Aid, or FAFSA, through Frank.
Forbes 30 under 30:
– Charlie Javice: JP Morgan says it used millions of fake clients to dupe them into acquisition;
— Caroline Ellison: CEO, Alameda Research, money fraud;
— Elizabeth Holmes: CEO, Theranos, fraudsters convicted of biotechnology;
– Sam Bankman-Fried: You know him. pic.twitter.com/CUCjlUcEtw
— Yuriy Gnatyuk 🇺🇦 (@ygnatyuk_) January 12, 2023
FAFSA, which has a reputation for being a notoriously difficult application, requires colleges, states, and the Department of Education to qualify for financial aid, scholarships, and more.
That pool of young clients was apparently like catnip for JPMorgan, which found in its lawsuit that it believed “Frank was a proven acquisition machine for college-age students.”
However, the lawsuit alleges that when JPMorgan asked Javice for evidence that it had more than 4 million customers, it initially backed down, claiming it could not share the names for privacy reasons. Frank actually had fewer than 300,000 customer accounts, the lawsuit alleges.
“Following JPMC’s insistence, Javice chose to invent millions of Frank customer accounts from scratch,” the lawsuit reads.
4.2 million alleged fakes
Javice allegedly reached out to an unnamed professor at a New York City-area college to solve their problem, paying him $18,000 to compile a list of names.
“Ultimately, the data science professor created a list of 4.265 million fake customer accounts (the ‘fake customer list’) as requested by Javice,” JPMorgan alleges in the lawsuit.
JPMorgan, unaware of the alleged problems at the time, completed the $175 million purchase but realized something might be wrong when it sent out a test marketing campaign to Frank’s client list. The results were “catastrophic,” the complaint said.
“JPMC sent marketing test emails to allegedly 400,000 unique Frank customers,” the lawsuit says. “Of the people contacted, only 28% of the emails were delivered, compared to a 99% delivery rate that JPMC typically sees for similar campaigns. Only 1.1% of delivered emails were opened compared to 30% for a typical JPMC campaign.”
Now suspicious, the bank reviewed Frank’s business, as well as emails, chats and messages between Javice, the data science professor and Frank’s chief growth officer, which the lawsuit says revealed problems with Frank’s customer list.
“In every aspect of her interactions with JPMC, Javice had a choice between (i) revealing the truth about her startup and accepting Frank’s true worth, and (ii) lying to inflate Frank’s worth and reap the rewards of that inflation,” reads it in suit . “Javice chose to lie every time and the evidence shows she has repeatedly layered fraud upon fraud to fool JPMC.”