Former CEO of Frank Charged With Fraud Over $175 Million Deal With JPMorgan

The Department of Justice Building in Washington, on Dec. 15, 2020. (Al Drago/Reuters)

Charlie Javice, the founder of failed student loan assistance platform Frank, has been charged with defrauding banking giant JPMorgan Chase (JPMC) out of $175 million, the Department of Justice (DOJ) announced.

Javice, 31, was arrested in New Jersey on April 3 and appeared before U.S. Magistrate Judge Barbara Moses on Tuesday, according to the DOJ. Janice was released on a $2 million bond that restricts her to certain parts of New York and southern Florida, ABC News reports.

The former CEO is accused of “dramatically inflating the number of customers of her company” in order to “fraudulently induce” JPMorgan Chase to acquire Frank for $175 million.

Javice, who appeared on the Forbes 2019 “30 Under 30” list, stood to gain more than $45 million from the fraud, prosecutors said. The Miami Beach, Florida, resident is charged with one count of conspiracy to commit bank and wire fraud, one count of wire fraud affecting a financial institution, and one count of bank fraud.

Each count carries a maximum sentence of 30 years in prison. She also faced one count of securities fraud, which carries a maximum sentence of 20 years behind bars.

“As alleged, Javice engaged in a brazen scheme to defraud JPMC in the course of a $175 million acquisition deal,” Damian Williams, U.S. attorney for the Southern District of New York, said in a statement.

“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,” Williams added.

Case Details

The Securities and Exchange Commission on Tuesday also charged Javice with fraud in connection with the alleged scheme.

Founded in 2017, Frank offered software aimed at simplifying the application process for Americans seeking federal financial aid for college or graduate school.

According to prosecutors, four years after founding the company, Javice began looking to sell the company to a larger financial institution, and JPMorgan Chase expressed interest in doing so and began an acquisition process with Frank.

Prosecutors said that the Frank CEO represented repeatedly to those banks that Frank had 4.25 million customers or users, meaning individuals who had signed up for an account with Frank, but that the company in reality had less than 300,000 users.

“When JPMC sought to verify the number of Frank’s users and the amount of data collected about them—information that was critical to JPMC’s decision to move forward with the acquisition process—Javice fabricated a data set,” prosecutors said.

“To do this, Javice and a co-conspirator first asked Frank’s director of engineering to create an artificially generated data set (a so-called synthetic data set).  The director of engineering raised concerns about the legality of the request, to which Javice responded, in substance and in part, ‘We don’t want to end up in orange jumpsuits.’ The director of engineering declined the request,” they added.

JPMorgan Files Lawsuit

According to prosecutors, the CEO then enlisted the help of an outside data scientist to create the fake data set which was then used to convince the banking giant that Frank had over 4.25 million customers. Javice also allegedly purchased real data on over 4.25 million college students “to cover up their misrepresentations,” amounting to $105,000, prosecutors said.

JPMorgan Chase ultimately agreed to purchase Frank for $175 million under a deal in which the banking giant hired Javice and other Frank employees. According to prosecutors, Jacive received over $21 million for selling her equity stake in Frank and, per the terms of the deal, was to be paid another $20 million as a retention bonus.

However, JPMorgan later discovered the data discrepancy and informed Javice in July 2021 that it would not be going ahead with the deal.

The latest charges come shortly after JPMorgan shut down Frank in January after suing Javice and Frank’s chief growth officer Olivier Amar for creating the more than four million fake customer accounts.

Javice in February filed a counterclaim (pdf), accusing the bank of trying to “shift the blame for a failed and now-regretted acquisition to someone they view as an easy target: its young female founder.” That lawsuit also called the bank’s claims “even more implausible than they are meritless” and asked the judge to hold JPMorgan “accountable for its unlawful conduct” against Javice.

A spokesperson for Javice’s attorney, Alex Spiro, told CNBC, “Charlie denies the allegations,” but did not provide further comments.

The Epoch Times has contacted attorney Spiro for comment.