Main menu

Pages

JP Morgan says startup founder used millions of fake customers to trick him into an acquisition

featured image

The financial giant is suing the founder of a Mark Rowan-backed startup it acquired, alleging fintech Frank sold the financial giant in a “lie”.


JPMorgan Chase is suing the 30-year-old founder of Frank, a fintech startup it acquired for $175 million, for allegedly lying about its scale and success by creating a huge roster of fake users to lure the financial giant into buying 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 assistance. His lofty goals of turning the startup into “an Amazon for higher education” have won the backing of billionaire Marc Rowan, Frank’s main investor according to Crunchbase, and prominent venture capitalists including Aleph, Chegg, Reach Capital, Gingerbread Capital and SWAT Equity Partners.

The lawsuit, which was filed late last year in the U.S. District Court in Delaware, claims that Javice filed JP Morgan in 2021 with the “lie” that more than 4 million users signed up to use Frank’s tools to apply for federal assistance. When JP Morgan asked for proof during due diligence, Javice allegedly created a huge list of “fake clients – a list of names, addresses, dates of birth and other personal information of 4.265 million ‘students’ who did not actually exist”. In reality, according to the lawsuit, Frank had less than 300,000 customer accounts at the time.

“Javice first rejected JPMC’s request, arguing that she could not share her client list due to privacy concerns,” the complaint continues. “After JPMC insisted, Javice decided to invent several million Frank client accounts out of thin air.” The complaint includes screenshots of presentations Javice gave to JP Morgan illustrating Frank’s growth and claiming he had over 4 million customers.

In the same week, JP Morgan filed a lawsuit against Javice, Javice filed a lawsuit against JP Morgan. The complaint from the former CEO of Frank stated that the bank last spring “initiated a series of baseless investigations into Ms. Javice’s conduct” and subsequently “manufactured a termination for cause in bad faith” and “worked to force Mrs. Javice out of the [JP Morgan] organization,” to deny her millions in compensation she 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 rocket business, JPMC realized it could not circumvent existing student privacy laws, committed misconduct and attempted to renegotiate the agreement,” Javice’s attorney Alex Spiro said in a statement. emailed to Forbes. “Charlie reported and sued. JPMC’s newest suit is nothing more than a disguise.”

Asked in her 30-under-30 presentation about the biggest hurdle the company was facing, Javice said: “Scaling.”

Frank’s director of growth, Olivier Amar, is also named in the JP Morgan complaint. He alleges that Javice and Amar first asked a top Frank engineer to create the fake customer list; when he declined, Javice approached “a data science professor at a New York-area college” for help. Using data from a few individuals who had already started using Frank, he created 4.265 million fake customer accounts – for which Javice paid $18,000 – and had them validated by a third-party vendor under her direction, alleges JP Morgan. The complaint includes screenshots of the teacher’s invoices and states that Javice went to great lengths to ensure that documentation for this work was destroyed or altered to avoid raising eyebrows. Amar, meanwhile, spent $105,000 purchasing a separate dataset of 4.5 million students from company ASL Marketing, according to the complaint. Amar and ASL Marketing have not yet responded to a request for comment.

Bipartisan members of Congress sounded the alarm about Frank in 2020, asking the FTC to investigate its “deceptive practices” and issue the company a temporary restraining order to stop them. “We are concerned that Frank is creating false hope and confusion for students while contributing unnecessary extra work for financial aid administrators,” lawmakers, including Representatives Lloyd Smucker and Representative Haley Stevens, wrote in a letter. “We further suspect that the company may be using data collected from misled students to make a profit by selling data to third-party advertisers. … This tool does not make it easier for students to obtain relief funds, and instead appears to be a way for Frank to mine and exploit student data for profit.” Frank subsequently received a warning letter from the consumer protection agency. Javice’s attorney, Spiro, did not immediately respond to a request for comment on the FTC’s letter.

When JP Morgan acquired Frank in September 2021, it brought in Javice, Amar and other Frank employees as employees. Javice is a Wharton graduate of the University of Pennsylvania and was named to the forbes List of the 30 under 30 in finance in 2019. She said forbes after Frank helped 300,000 students apply for financial aid; when she announced the acquisition of JP Morgan on LinkedIn two years later, she said she was “serving more than 5 million students at more than 6,000 colleges.” (Asked in her 30-under-30 presentation about the biggest hurdle the company was facing, Javice said, “Scale.”)

“Javice chose to invent several million Frank client accounts out of thin air.”

JP Morgan Complaint Against Founder and Former CEO of Frank

Since Frank was acquired, she was managing director at JP Morgan, overseeing student-oriented products at Chase, according to her LinkedIn. It received nearly $10 million as part of the merger, negotiating an additional $20 million retention bonus to be paid after a later acquisition date if it remained in good standing. Amar, who was named executive director of student solutions at JP Morgan, according to his LinkedIn, received about $5 million from the settlement and also negotiated a $3 million retention bonus, the complaint said. This fact was previously reported by the Wall Street Journal.

After the deal was completed, JP Morgan asked Frank for his client list so the bank could begin marketing its products and services to these students, the lawsuit says. Javice and Amar submitted a list of data derived from ASL Marketing and another third-party vendor, Enformion, according to the lawsuit. When JP Morgan sent out test marketing emails to what it thought were 400,000 Frank customers, the results “were disastrous,” he says. Only about a quarter of emails were delivered, and of those, only 1% were opened, the lawsuit alleges.

As a result of the “extraordinarily poor returns” from that campaign, JP Morgan revisited what it thought it knew about Frank and uncovered what it now claims are false listings.

“In all aspects of his interactions with JPMC, Javice was given a choice between (i) revealing the truth about his startup and accepting Frank’s real value and (ii) lying to increase Frank’s value and reap the rewards of that inflation. ”, says the lawsuit. . “Javice chose to lie every time, and the evidence shows that multiple times she used fraud after fraud to deceive the JPMC. Javice and Amar used the False Customer List and other known false representations of the Merger Agreement to fraudulently induce JPMC to enter into the Merger.”

Javice’s complaint against JP Morgan said the bank failed to “leverage the acumen of Javice and Frank to attract a new young and diverse audience to Chase’s services” and instead pursued “ill-conceived business plans” focused on “Frank’s historic clients”.

“Chase mismanaged its investment early on and decided it would rather walk away from the investment than work on it further,” Javice’s complaint said.

Amar was sacked in October and Javice in November. Several other former Frank employees still appear to work at JP Morgan, according to LinkedIn.

asked no forbes 30 Under 30 gave the worst advice he’s ever received, Javice replied: “Be patient.”

MORE FROM FORBES

MORE FROM FORBESByteDance, parent of TikTok, enters payments with help from JP MorganMORE FROM FORBESWeWork co-founder Adam Neumann’s new real estate startup looks a lot like the one he invested in two years agoMORE FROM FORBESCrypto darling Helium promised a ‘people’s network’. Instead, his executives got rich.MORE FROM FORBESInside the Secret World of Shark Tank Businesses: Who Are the Real Winners?

.

Comments