JPMorgan paid $175 million for the hot startup. Now he claims the CEO defrauded 4 million customers.

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

Now JPMorgan claims that Frank’s inspirational story of helping more than 5 million students get into college is largely fictional, according to a lawsuit filed by the bank last month. Javice allegedly paid a data science professor $18,000 to create a list of more than 4 million fake student names to convince the financial giant to pay the purchase price.

The allegations are the latest in a highly lauded millennial company founder accused of financial fudge. Sam Bankman-Fried FTX 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]when he received the cash, Javice decided to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration. [JPMorgan] To buy the franc for 175 million dollars,” the bank claims in the complaint.

Javice’s attorney, Alex Spiro, denied the allegations in an emailed statement to CBS MoneyWatch. JPMorgan “knows that their submissions are retaliatory and misleading,” it said. “They were provided with all the information in advance of Frank’s acquisition, and Charlie Javice highlighted the limitations of student privacy laws during due diligence.”

He added: “When [JPMorgan] Unable to work around these privacy laws after Frank’s buyout, JPMC began misrepresenting the facts to cover their tracks and falsely accuse Charlie Javit of getting the deal back.”

JPMorgan, which said Javice no longer works for the company, is seeking unspecified punitive and compensatory damages in the lawsuit.

“Verified Acquisition Machine”

The lawsuit explains why JPMorgan recruited Frank when Javice, a graduate of the University of Pennsylvania, applied to the bank in the summer of 2021. He cited the startup’s 4.25 million users, students who have started or completed the Free Application for Federal Student Aid. or FAFSA, through Frank.

Known as a difficult application, the FAFSA is required by colleges, states and the Department of Education to qualify for financial aid, scholarships and more.

That pool of young customers was apparently a catnip for JPMorgan, which noted in its lawsuit that “Frank is a proven winning machine for college-age students.”

But when JPMorgan allegedly asked Javice for proof that it had more than 4 million customers, it initially backed off, claiming it could not share names due to privacy concerns. Allegedly, Frank actually had less than 300,000 customer accounts.

“At JPMC’s insistence, Javice chose to invent a multi-million franc customer account out of the whole cloth,” the suit says.

Alleged 4.2 million fakes

To solve his problem, Javice allegedly approached an unnamed professor at a New York City college and paid 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 said in the lawsuit.

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

“JPMC sent marketing test emails to what it believed to be 400,000 unique Frank customers,” it claims. “Of those contacted, only 28% of emails were delivered, compared to the 99% delivery rate JPMC typically sees in similar campaigns. Only 1.1% of delivered emails were opened, compared to 30% for a typical JPMC campaign.”

Now under suspicion, the bank reviewed Frank’s business, as well as emails, chats and messages between Javice, a data science professor, and Frank’s chief development officer, which the lawsuit alleges revealed problems with Frank’s client list.

“In every aspect of his interactions with JPMC, Javice chose between (i) revealing the truth about his startup and accepting Frank’s true value, and (ii) lying and benefiting from this inflation to inflate Frank’s value,” the lawsuit states. . “Javice chose to lie each time, and the evidence shows that he repeatedly used fraud upon fraud to defraud JPMC.”

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