Millennial CEO and founder of fintech startup Frank charged with defrauding JPMorgan of $175 million
Charlie Javice, the 31-year-old founder and CEO of fintech startup Frank, has been charged with fraud. Javice was charged with defrauding JPMorgan in its $175 million acquisition of the college financial planning website by falsely inflating the number of its users, Bloomberg reported.
According to the report, Javice was charged by federal prosecutors in Manhattan on Tuesday with one count of conspiracy to commit bank and wire fraud, one count of wire fraud, one count of wire fraud affecting a financial institution, and one count of bank fraud.
In a statement Tuesday, Manhattan US Attorney Damian Williams said:
“As alleged, Javice engaged in a brazen scheme to defraud JPMC in the course of a $175 million acquisition deal. She lied directly to JPMC and fabricated data to support those lies—all in order to make over $45 million from the sale of her company. This arrest should warn entrepreneurs who lie to advance their businesses that their lies will catch up to them, and this Office will hold them accountable for putting their greed above the law.”
Following the announcement, Javice said: ‘Don’t want to end up in orange jumpsuits,’ US claims.
We first covered the story in January after Wall Street bank JP Morgan filed a lawsuit against the founder of the buzzy fintech startup it acquired for allegedly lying about its success by creating 4 million fake customer accounts to entice the financial giant to buy it.
Frank was founded in 2016 by former CEO Charlie Javice to make the application process for college student loans faster and easier. During its time of operation, Frank claimed to offer software aimed at improving the student loan application process for young Americans seeking financial aid.
Javice’s lofty ambition to build the startup into “an Amazon for higher education” also won support from billionaire Marc Rowan, Frank’s lead investor according to PitchBook, and other high-profile venture backers including Aleph, Chegg, Reach Capital, Gingerbread Capital, and SWAT Equity Partners. In 2019, Javice was even listed as part of Forbes 30 Under 30. But, as it turns out, Frank was another house of cards that would soon come tumbling down as JP Morgan now say Charlie used millions Of fake accounts to dupe it into an acquisition.
Frank Fake Email Accounts
Months after the acquisition was completed, JPMorgan said it learned the truth after sending out marketing emails to a batch of 400,000 Frank customers. In a lawsuit filed last month in federal court, JP Morgan said that about 70% of the emails bounced back, indicating that Frank had been cooking the books.
JP Morgan also alleged that Javice approached the bank in mid-2021 about a potential sale, but lied to the bank about her startup’s scale. Specifically, after being pressed for confirmation of Frank’s customer base during the due diligence process, Javice used a data scientist to invent millions of fake accounts,” the bank said.
“To cash in, Javice decided to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration in order to induce JPMC to purchase Frank for $175 million,” the bank said. “Javice represented in documents placed in the acquisition data room, in pitch materials, and through verbal presentations [that] more than 4.25 million students had created Frank accounts.”
Instead of gaining a business with 4.25 million students, JPMorgan had one with “fewer than 300,000 customers,” JPMorgan said in the suit.