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JPMorgan shuts down website it paid $175 million for, accuses founder of creating millions of fake accounts

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, when in reality Frank's success, size, and market penetration were much less than what was claimed.‍

January 12, 2023
5 minutes
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JPMorgan Chase has shut down the website for a college financial aid platform it bought for $175 million, alleging that the company's founder created nearly 4 million fake customer accounts.

In September 2021, the country's biggest bank acquired Frank to help it deepen relationships with college students, a key demographic. A Chase executive told CNBC at the time that this would be a great way to connect with this important group of people.
JPMorgan Chase & Co. announced on Monday that it has acquired the student loan startup, Frank, for an undisclosed sum.The deal gives JPMorgan the "fastest-growing college financial planning platform" used by more than 5 million students at 6,000 institutions. It also provides access to the startup's founder, Charlie Javice, who joined the New York-based bank as part of the acquisition.JPMorgan Chase & Co. is one of the largest banks in the United States, with more than $2.6 trillion in assets. The acquisition of Frank will help the bank expand its reach in the student loan market.
Months after the transaction closed, JPMorgan said it learned that many of the Frank customers it had attempted to contact via email were no longer active. About 70% of the emails sent out bounced back, the bank said in a lawsuit filed last month in federal court.

Javice allegedly lied to JPMorgan about her startup's scale when she approached the bank about a potential sale in mid-2021. According to JPMorgan, Javice was pressed for confirmation of her customer base during the due diligence process and used a data scientist to invent millions of fake accounts.
Javice decided to lie 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, when in reality Frank's success, size, and market penetration were much less than what was claimed.

JPMorgan said in the suit that instead of gaining a business with 4.25 million students, it had one with "fewer than 300,000 customers."
In the suit, JPMorgan alleged that Javice first asked her engineering chief to create "fake customer details" using algorithms. When he refused, she found a data science professor at a New York-area college to create the accounts, according to the lender.

The bank's suit included incriminating emails between the unnamed professor and Javice.
For example, Javice is said to have asked the professor, “Will the fake emails look more convincing if they pass an eye test or if each has a unique ID?”
JPMorgan had access to the emails because it had acquired Frank's technology systems as part of the acquisition, according to a person familiar with the situation.
Javice's lawyer told The Wall Street Journal that JPMorgan had "manufactured" reasons to fire her late last year to avoid paying millions of dollars owed to her. Javice has sued JPMorgan, saying the bank should front legal bills she incurred during its internal investigations.

According to attorney Alex Spiro, JPM's acquisition of Charlie's rocketship business led to the realization that they could not work around existing student privacy laws. This led to misconduct on JPM's part, and they then tried to retrade the deal. Charlie blew the whistle and sued.
Spiro, a partner at Quinn Emanuel, was not available for comment when CNBC reached out.

Pablo Rodriguez, a spokesman for JPMorgan, had this to say in response:
"We have filed a complaint against Ms. Javice and Mr. Amar, setting out our legal claims and the key facts," he said. "Ms. Javice was not and is not a whistleblower. Any dispute will be resolved through the legal process."

JPMorgan said in its suit that the alleged fraud perpetrated by Javice and one of her executives "materially damaged JPMC in an amount to be proven at trial, but not less than $175 million."

This legal scuffle is an embarrassing episode for JPMorgan and its CEO, Jamie Dimon. In a bid to fend off encroaching competitors, JPMorgan has gone on a buying spree of fintech companies in recent years. Dimon has repeatedly defended his technology investments as necessary ones that will yield good returns.
The recent allegations that a young founder duped JPMorgan calls into question the bank's due diligence process. This is particularly concerning given the industry's history of shaky metrics and the "fake it 'til you make it" ethos.

In an interview at the time of the deal, Javice marveled at how far she had come in just a few years leading her startup. She said that when she started the company, she never imagined it would grow to be so successful. Javice credits her team's hard work and dedication for the company's success.
"I can't believe this is really happening," Javice told CNBC. "It feels like a dream come true."
JPMorgan shut down Frank early Thursday morning as a result of the legal scuffle.

The website now reads, "Frank is no longer available." To file your Free Application for Federal Student Aid (FAFSA), please visit StudentAid.gov.

Editorial Board
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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