The United States Securities and Exchange Commission has loaded Charlie Javice, the founder of student financial aid startup Frank, with fraud in connection with the company’s $175 million sale to JPMorgan Chase Bank in 2021.
JPMorgan filed a lawsuit against Javice in December, alleging that he had helped “falsify millions of customers to induce the bank to buy his company”. That charge is the root of the SEC’s complaint today, which accuses Javice of “making numerous misrepresentations” about Frank’s alleged millions of users to lure JPMorgan.
The complaint alleges that as talks between the two parties progressed, JPMorgan pressured Frank’s executives for data associated with his clients. Javice allegedly sought the help of Frank’s engineering director to generate synthetic data to make it appear as if Frank had 4.25 million customers. And when that director refused to cooperate, Javice allegedly paid a data science professor $18,000 to fabricate the data “required to close the deal.” The young businesswoman denies these claims and in turn filed her own lawsuit against the bank, alleging that the bank had let her go in November “in bad faith”.
For its part, JPMorgan claims it learned of the alleged fraud when it sent marketing test emails to a list of Frank’s clients provided by the company, and more than 70% of them recovered.
As part of the acquisition, Javice reportedly received $9.7 million directly in stock proceeds, millions more indirectly through trusts, as well as a contract that entitles her to a $20 million retention bonus as a new JPMorgan employee. Chase.
“Instead of helping students, we allege that Ms. Javice engaged in old-school fraud: She lied about Frank’s success in helping millions of students navigate the college financial aid process by fabricating data to back her up. his claims and then used that false information. to induce JPMC to enter into a $175 million transaction,” said Gurbir S. Grewal, head of the SEC’s division of enforcement, in a written statement. “Even unlisted early-stage companies must be truthful in their representations, and when they fall short, we will hold them accountable as in this case.”
The lawsuit, filed in the US District Court for the Southern District of New York, charges Javice with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The lawsuit it also names trusts held by Javice as defendants in redress. The SEC is seeking injunctive relief, a bar of officers and directors, restitution and pre-judgment interest thereon, and civil penalties.
Since the lawsuit was filed, there has been a lot of back and forth between the two parties. JPMorgan Chase has since described the acquisition as “A big mistake.” In January, the bank close Frank website. And in March, Javice filed a countersuit, saying it was “implausible” that JP Morgan “would have believed that Frank had 4.25 million registered users when his website publicly claimed that the company had helped more than 350,000 people access financial help”. He also claims the bank could not have been misled about the deal, pointing to due diligence materials and valuation data.
