Financial giant is suing the founder of a Mark Rowan-backed startup, claiming fintech Frank sold the financial giant on a “lie”.
JPMorgan Chase is suing the 30-year-old founder of Frank, the high-profile fintech startup it acquired for $175 million, alleging he lied about its scale and success by creating a large list of fake users to lure the financial giant into buying it.
Founded in 2016 by former CEO Charlie Javice, Frank 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 garnered the support of Frank’s lead investor, billionaire Marc Rowan, and prominent venture backers including Aleph, Chegg, Reach Capital, Gingerbread Capital and SWAT Equity Partners, according to Crunchbase.
The lawsuit, filed late last year in US District Court in Delaware, alleges that Javice “falsely” told JP Morgan in 2021 that more than 4 million users had signed up to use Frank’s tools to apply for federal aid. When JP Morgan requested evidence during due diligence, Javice allegedly had “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 actually exist”. In reality, Frank had fewer than 300,000 customer accounts at the time, according to the lawsuit.
“Javice initially pushed back on JPMC’s request, claiming it could not share its client list due to privacy concerns,” the complaint continues. “At JPMC’s insistence, Javice chose to invent several million Francs customer accounts out of the whole cloth.” The complaint includes screenshots of Javice’s presentations to JP Morgan that show Frank’s growth and claim he has more than 4 million clients.
That same week, JP Morgan filed suit against Javice, Javice against JP Morgan. The former Frank CEO’s complaint alleged that the bank “initiated a series of unfounded investigations into Ms. Javice’s conduct” last spring and then “dismissed her for cause in bad faith” and “forced Ms. Javice’s termination.” [JP Morgan] denied millions in compensation owed to the organization. As part of those investigations, the complaint says, JP Morgan “accused Ms. Javice of misconduct” during and after the acquisition of Frank.
“After JPMC rushed to acquire Charlie’s rocket business, JPMC realized they couldn’t work around existing student privacy laws, misbehaved and then tried to buy the deal again,” Javice’s attorney, Alex Spiro, said in an emailed statement to Forbes. “Charlie blew the whistle and then sued. JPMC’s newest suit is nothing more than a cover.”
Asked about the biggest hurdle facing the company in his 30 by 30 presentation, Javice said: “Measurement.”
Franck’s chief growth officer, Olivier Amar, is also named in the JP Morgan complaint. He claims that Javice and Amar first asked a senior engineer at Frank’s company to create a fake customer list; when he refused, Javice turned to a “data science professor at a New York City college” to help. JP Morgan alleges that, using the information of some of the people who started using Frank, he created 4.265 million fake customer accounts – for which Javice paid him $18,000 and which were approved by a third-party vendor at his direction. The complaint includes screenshots of the professor’s invoices and allegations that Javice went to great lengths to ensure that the case’s documents were destroyed or altered to avoid raising eyebrows. Amar, meanwhile, spent $105,000 to buy a separate data set of 4.5 million students from ASL Marketing, according to the complaint. Amar and ASL Marketing have yet to respond to a request for comment.
Bipartisan members of Congress raised the alarm about Frank in 2020, calling on the FTC to investigate its “deceptive practices” and place temporary restrictions on the company to stop them. “We are concerned that Frank creates false hope and confusion for students, while contributing to unnecessary overtime for financial aid administrators,” the lawmakers, including Reps. Lloyd Smucker and Haley Stevens, wrote in the letter. “We further suspect that the company may be using data collected from confused students to generate profits by selling the data to third-party advertisers. … This tool does not make it easy for students to receive aid funds and instead appears to be a way for Frank to use students’ data for profit.” Frank then 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 letter.
When JP Morgan bought Frank in September 2021, it brought on Javice, Amar and other Frank employees as employees. Javice graduated from Wharton at the University of Pennsylvania and was named Forbes 2019 list of 30 under 30 in finance Forbes then Frank helped 300,000 students apply for financial aid; when it announced its acquisition of JP Morgan on LinkedIn two years later, it said it “serves more than 5 million students at more than 6,000 colleges.” (When asked in his 30 by 30 presentation about the company’s biggest hurdle, Javice said: “Measurement.”)
“Javice chose to invent a multi-million Franc customer account out of the whole cloth.”
After Frank was acquired, he was a managing director at Chase at JP Morgan, overseeing student-oriented products, according to LinkedIn. He received about $10 million as part of the merger and negotiated an additional $20 million retention bonus that would be paid after the next vesting date if he remained in good standing. Amar, who was appointed executive director of student solutions at JP Morgan, received about $5 million from the contract and similarly negotiated a $3 million retention bonus, according to LinkedIn. He published information about this claim earlier The Wall Street Journal.
After the deal closed, JP Morgan asked Frank for a list of clients so the bank could begin marketing its products and services to those students. Javice and Amar allegedly sent a list of data obtained from ASL Marketing and another third-party vendor, Enformion. When JP Morgan sent test marketing emails to what it thought were 400,000 Franc customers, the results were “disastrous,” he said. Allegedly, only a quarter of emails were delivered and only 1 percent of them were opened.
As a result of the “extraordinarily poor returns” of that campaign, JP Morgan re-examined what it thought it knew about Frank and discovered what it now claims were fake listings.
“In every aspect of his interaction with JPMC, Javice chose between (i) revealing the truth about his startup and accepting the true value of the franc and (ii) lying to increase the value of the franc and benefiting from this inflation,” he said. . “Javice chose to lie every time and the evidence shows that he repeatedly used fraud upon fraud to defraud JPMC. Javice and Amar used a false Customer List and other knowingly false Merger Agreement representations to induce JPMC to enter into the merger.
Javice’s complaint against JP Morgan said the bank “failed to use the acumen of Ms. Javice and Frank to attract a young, diverse new audience to Chase services” and instead implemented “poorly conceived business plans” aimed at “Frank’s historical customers.”
“Chase grossly mismanaged his investment from the beginning, and he decided he would rather recoup the investment than work on it,” Javice’s complaint said.
Amar was fired in October and Javice in November. Several other former Frank employees still work at JP Morgan, according to LinkedIn.
he asked Forbes 30 Presenting the worst advice he received before turning 30, Javice replied: “Be patient.”