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

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

The financial giant is suing the founder of a Mark Rowan-backed startup he acquired, claiming fintech Frank sold the financial giant on a “lie”.

JPMorgan Chase is suing the 30-year-old founder of Frank, a hot fintech startup he acquired for $175 million, for allegedly lying about its scale and success by creating a huge list of fake users to induce 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. His lofty goals of turning the startup into “an Amazon for higher education” have won the backing of billionaire Marc Rowan, Frank’s lead investor according to Crunchbase, and prominent backers such as Aleph, Chegg, Reach Capital, Gingerbread Capital and SWAT Equity Partners.

The lawsuit, which was filed late last year in the US District Court in Delaware, claims Javice launched JP Morgan in 2021 on the ‘lie’ that more than 4 million users had signed up. registered to use Frank’s tools to apply for federal assistance. When JP Morgan asked for evidence during due diligence, Javice allegedly created a huge list of ‘fake customers’ – a list of names, addresses, dates of birth and other personal information for 4.265 million ‘students’ who didn’t exist. not really”. In fact, according to the lawsuit, Frank had fewer than 300,000 client accounts at that time.

“Javice initially rebuffed JPMC’s request, arguing that it could not share its client list due to privacy concerns,” the complaint continues. “After JPMC’s insistence, Javice chose to invent several million Frank client accounts from scratch.” The complaint includes screenshots of presentations Javice gave to JP Morgan showing Frank’s growth and claiming he had more than 4 million customers.

The same week JP Morgan filed its lawsuit against Javice, Javice filed a lawsuit against JP Morgan. The complaint from Frank’s former CEO alleged that the bank last spring “began a series of baseless investigations into Ms. Javice’s conduct”, then “fabricated a dismissal for cause in bad faith” and “worked for force Mrs. Javice to leave the [JP Morgan] organization,” to deny him the millions in compensation that were owed to him. As part of these investigations, according to the complaint, 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, erred, and then attempted to re-trade the ‘agreement,” Javice’s attorney, Alex Spiro, said in a statement emailed to Forbes. “Charlie denounced and then sued. JPMC’s new costume is nothing but a cover.

Asked in her 30 Under 30 submission what the biggest hurdle facing the company was, Javice replied, “Scaling.”

Frank’s chief growth officer, Olivier Amar, is also named in JP Morgan’s complaint. He alleges that Javice and Amar first had a high-level engineer at Frank create the fake client list; when he refused, Javice approached “a New York-area college data science professor” for help. Using data from some people who had already started using Frank, he created 4.265 million fake customer accounts — for which Javice paid him $18,000 — and had them validated by a third-party vendor under his direction, according to JP Morgan. The complaint includes screenshots of the professor’s invoices and claims 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 to purchase a separate dataset of 4.5 million students from the company ASL Marketing, according to the complaint. Amar and ASL Marketing have not yet responded to a request for comment.

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

When JP Morgan acquired Frank in September 2021, it recruited Javice, Amar and other members of Frank’s staff as employees. Javice graduated from Wharton at the University of Pennsylvania and was appointed to the Forbes List of 30 under 30 in finance in 2019. She said Forbes then that Frank had helped 300,000 students apply for financial aid; when she announced the acquisition of JP Morgan on LinkedIn two years later, she said it “then served more than 5 million students at over 6,000 colleges.” (Asked in his 30 Under 30 submission about the biggest hurdle facing the company, Javice replied, “Scaling.”)

“Javice chose to invent several million Frank client accounts from scratch.”

Complaint by JP Morgan against the founder and former CEO of Frank

Since Frank’s acquisition, she was a general manager at JP Morgan, overseeing student-facing products at Chase, according to her LinkedIn. She received nearly $10 million as part of the merger, negotiating an additional retention bonus of $20 million to be paid after a later acquisition date if she 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 deal and also negotiated a retention bonus of $3 million, according to the complaint. The lawsuit was reported earlier by the the wall street journal.

After the deal was done, JP Morgan asked Frank for his client list so the bank could begin marketing its products and services to those students, the lawsuit says. Javice and Amar sent 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,” he claims. Only about a quarter of emails were delivered, and of those, only 1% were opened, according to the lawsuit.

Following “unusually poor returns” from this campaign, JP Morgan re-examined what it thought it knew about Frank and uncovered what it now claims were fake listings.

“In all aspects of his interactions with JPMC, Javice had a choice between (i) revealing the truth about his startup and accepting Frank’s true value and (ii) lying to inflate Frank’s value and reap the rewards of that inflation. “, says the costume. . “Javice chose to lie each time, and evidence shows that time and again she layered fraud on fraud to deceive JPMC. Javice and Amar used the false client list and other knowingly false representations of the merger agreement to fraudulently induce JPMC to complete the merger.

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

“Chase grossly mismanaged his investment from the start, and he decided he’d rather backtrack on the investment than work on it further,” Javice’s complaint said.

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

Asked in the Forbes 30 Under 30 Submitting the worst piece of advice she’s ever received, Javice replied, “Be patient.”


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