Frank Founder Javice, Who Says JPMorgan Scapegoated Her, Is Charged With Fraud

(Bloomberg) -- Frank founder Charlie Javice was released on a $2 million bond after being charged with defrauding JPMorgan Chase & Co. in its $175 million acquisition of the college financial-planning site by vastly inflating the number of its users.

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Javice, 31, “engaged in a brazen scheme to defraud” JPMorgan, Manhattan US Attorney Damian Williams said in a statement Tuesday. “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.”

The criminal charges include conspiracy, wire fraud affecting a financial institution and bank fraud, each of which carries a maximum sentence of 30 years in prison if Javice is convicted. She was also charged with securities fraud, which has a 20-year maximum.

Javice, who is a dual citizen of France and the US, lives in Miami. She was arrested Monday evening at Newark Liberty International Airport and appeared in Manhattan federal court Tuesday.

Under an agreement with prosecutors, Javice surrendered her US and French passports and her travel is limited to New York City and South Florida. Her $2 million bond is to be guaranteed by two people and by the equity in her Miami home. She’ll have to observe a curfew and isn’t permitted contact with witnesses or with current JPMorgan or former Frank employees.

Read the Justice Department statement here and the criminal complaint here

Alex Spiro, a lawyer for Javice, declined to comment, as did a JPMorgan spokesperson.

Earlier on Tuesday, Javice was sued for fraud by the US Securities and Exchange Commission.

‘30 Under 30’

Javice founded Frank in 2017 as an online platform to help college students fill out the Free Application for Federal Student Aid, or Fafsa. Forbes named her to its “30 Under 30” list for finance in 2019.

In 2021 she started looking for a buyer for the site, beginning the acquisition process with JPMorgan and a bank that isn’t named in the criminal complaint unsealed Tuesday. She told both banks that Frank had 4.25 million customers who had signed up for accounts, according to the government. In reality, the US claims, Frank had fewer than 300,000.

Read More: Jamie Dimon Calls JPMorgan’s Frank Acquisition a ‘Huge Mistake’

Prosecutors claim that during discussions with JPMorgan, Javice asked Frank’s director of engineering to take the company’s actual customer data set and use it to create a larger, synthetic set. The computer engineer, who isn’t identified, raised concerns, saying, “I don’t want to do anything illegal,” according to the complaint.

Javice and an unidentified co-conspirator said the request was legal.

‘Orange Jumpsuits’

“We don’t want to end up in orange jumpsuits,” she told him, according to the complaint. The engineer, who is a current JPMorgan employee as a result of the acquisition, declined.

Javice then hired an outside data scientist to create the phony set, falsely claiming the full database of Frank users was actually a smaller, random sample of a much larger database, the US says. She allegedly used the new data to support her claim the site had more than 4 million users in discussions with JPMorgan.

Read More: Dimon’s Acquisition Spree Stained by 29-Year-Old’s Startup

The bank, the nation’s largest, has been on a start-up buying spree since Chief Executive Officer Jamie Dimon said in 2020 he wanted to acquire more financial technology firms focused on sustainable investing and tax issues.

JPMorgan, which acquired Frank in 2021, sued Javice and another executive, Olivier Amar, in federal court in Delaware in December, alleging they used fake customer accounts to lead the bank into completing the deal by exaggerating the number of people using her site. To cover up lies about Frank’s customers, Javice bought sets of data on 4.5 million college students on the open market, according to the lawsuit.

Due Diligence

Amar wasn’t named as a defendant in either of Tuesday’s complaints. Earlier, he said in a bid to dismiss JPMorgan’s lawsuit that he wasn’t a party to the merger agreement and attended no more than one meeting with the bank before the deal.

Javice, who has sued JPMorgan in state court in Delaware to force the bank to cover her legal fees, argues it rushed to buy Frank without doing proper due diligence and was also trying to deflect attention from its violations of student privacy laws.

Read More: Dimon Pushed to Get JPMorgan’s Frank Deal Done, Founder Claims

Javice said in a response to JPMorgan’s suit that Dimon pushed to acquire Frank out of fear that another bank was looking at the company, that she was being scapegoated for the bank’s faulty due diligence and that it was JPMorgan that asked her to come up with synthetic data on Frank users.

Javice and JPMorgan agreed to the sale in August 2021, and it closed the next month. The deal called for Javice to get about $21 million from the merger and to continue working on Frank for the bank, with a $20 million retention bonus to be paid out over the next three years.

The criminal case is US v. Javice, 23-mag-02638; the civil case is Securities and Exchange Commission v. Javice, 23-cv-02795; US District Court, Southern District of New York (Manhattan).

--With assistance from Hannah Levitt.

(Updates with bail in third paragraph.)

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