JPMorgan paid $175 million for a hot start.  Now he claims his CEO faked 4 million customers.

JPMorgan paid $175 million for a hot start. Now he claims his CEO faked 4 million customers.

Charlie Javice started her company Frank in 2017 when she was 24 and a recent Ivy League graduate with the goal of helping students apply for college financial aid. In 2021, she was hailed as a business visionary and sold her startup to JPMorgan Chase for $175 million.

Now JPMorgan says Frank’s inspirational story of helping more than 5 million students get into college was largely a fabrication, according to a lawsuit filed last month by the bank. Javice allegedly paid a data science professor $18,000 to compile a list of more than 4 million fake student names to convince the financial giant to shell out the purchase price, according to the suit.

The allegations are the latest case of a highly regarded millennial business founder accused of faking the truth to score financially, ranging from Sam Bankman Fried from FTX to the disgraced founder of Theranos Elizabeth Holmes. Meanwhile, Frank, which was once meant to help JPMorgan expand its reach to students, has now been closed.

“[T]To cash in, Javice decided to lie, including about Frank’s success, Frank’s size, and the depth of Frank’s market penetration in order to induce [JPMorgan] buy Frank for $175 million,” the bank claims in the lawsuit.

Alex Spiro, an attorney for Javice, denied the allegations in an emailed statement to CBS MoneyWatch. JPMorgan “knows what they filed is retaliatory and misleading,” he said. “They received all the data in advance for Frank’s purchase and Charlie Javice pointed out the restrictions imposed by student privacy laws during due diligence.”

He added: “When [JPMorgan] couldn’t circumvent these privacy laws after Frank’s purchase, JPMC began to misrepresent the facts to cover their tracks and falsely accuse Charlie Javice of taking over the deal.”

JPMorgan, which said Javice no longer works at the company, said it was seeking unspecified punitive and compensatory damages at trial.

“Proven acquisition machine”

The lawsuit explains why JPMorgan was drawn to Frank when University of Pennsylvania graduate Javice 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 federal student aid application. , or FAFSA, through Frank.

The FAFSA, which has a reputation for being a notoriously difficult application, is required by colleges, states, and the Department of Education to qualify for financial aid, scholarships, and more.

This pool of young customers was apparently like catnip to JPMorgan, which noted in its lawsuit that it believed “Frank was a proven acquisition machine for college-aged students.”

But, according to the lawsuit, when JPMorgan asked Javice for proof that it had more than 4 million customers, she initially pushed back, saying she couldn’t share the names due to privacy concerns. Frank actually had fewer than 300,000 client accounts, according to the lawsuit.

“At JPMC’s insistence, Javice chose to invent several million Frank client accounts out of thin air,” the lawsuit alleges.

4.2 million alleged counterfeits

Javice reportedly turned to an anonymous New York-area college professor to solve his problem, paying him $18,000 to create 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 claims in the lawsuit.

JPMorgan, unaware of the alleged issues at this point, completed the $175 million purchase, but realized something might be wrong when it sent out a test marketing campaign to the list. of Frank’s customers. The results were “disastrous”, according to the complaint.

“JPMC sent marketing test emails to what it believed to be 400,000 unique customers of Frank,” the lawsuit claims. “Of those contacted, only 28% of emails were delivered, compared to a 99% delivery rate that JPMC typically sees with 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 belongings, as well as emails, chats and messages between Javice, Frank’s data science professor and chief growth officer, which the lawsuit said revealed problems with Frank’s client list.

“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 lawsuit. . “Javice chose to lie each time, and evidence shows that time and again she layered fraud on fraud to deceive JPMC.”

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