When JPMorgan Chase announced two years ago that it would buy Franka financial planning startup for students, the global banking giant said that by acquiring the apparently popular platform for $175 million, it hoped to strengthen its relationship with millions of young people.
But JPMorgan and federal authorities now believe there was a big problem: Many of the millions of students said to be using Frank never existed.
The Department of Justice filed charges of fraud, which was opened on Tuesdayagainst Javice, Frank’s founder and former CEO, alleging that she “participated in a brazen scheme” when she sold her company to JPMorgan Chase in 2021.
Securities and Exchange Commission separately announced its own fraud complaint against Javice on Tuesday, seeking a variety of penalties, including civil penalties and a ban on her being an official.
Both federal prosecutors and the SEC accused Javice of tricking JPMorgan into believing Frank had 4.25 million users, when in reality the number was less than 300,000.
According to federal authorities, the 31-year-old Javice allegedly fabricated and manipulated Frank’s data to make it appear as if her business served far more customers than it actually did. As a result of her alleged fraud, she stood to make more than $45 million, prosecutors said Tuesday.
Javice is charged with wire fraud, securities fraud, wire fraud affecting a financial institution and conspiracy to commit wire and wire fraud.
After her arrest Monday night, she appeared in court Tuesday and was released on $2 million bail and placed under travel restrictions.
“This arrest should serve as a warning to entrepreneurs who lie to promote their businesses that their lies will catch up with them,” US Attorney Damian Williams said in a statement.
Javice has denied the allegations through a spokesperson. Her attorney, Alex Spiro, declined to comment to ABC News for this story but maintained before Javice’s arrest that she was targeted by JPMorgan and had internally expressed concerns about student privacy laws. (A JPMorgan spokesman declined to respond to this claim but pointed to their own . fraud allegations against Javice.)
A deal is settled
Javice founded Frank in 2017 as a platform designed to simplify the student loan application process, Frank and JPMorgan said in announcing the acquisition. The firm helped propel Javice to national prominence with a glowing feature in Forbes and a spot on the magazine’s coveted “30 Under 30” list, which honors young professionals in finance.
JPMorgan hired Javice as chief executive of Frank as part of the 2021 acquisition but has said in court that its suspicions were raised when many alleged Frank users’ emails later appeared inaccessible.
Javice was fired last November, according to court documents.
Before her arrest, she and JPMorgan launched dueling lawsuits in December, with the bank alleging fraud and Javice alleging wrongful termination and that she was owed attorney’s fees after being targeted by the bank. She denied in court filings in February that she ever fabricated or distorted user data, telling JPMorgan only that her platform “had engaged with at least 4.25 million students.”
“Ms. Javice’s vision was that Frank would be the place for college-bound students and their families to turn to for all their financial needs … the knowledge and resources that students would have access to at Frank would empower them for decades as they received financial aid packages, built personal wealth and managed debts,” Javice’s lawyers wrote in a December court filing.
Spiro, her attorney, said in his earlier statement that “[JPMorgan] know that what they submitted is retaliatory and misleading. They were provided with all the information in advance of the purchase by Frank and Charlie Javice highlighted the limitations that student privacy laws imposed on due diligence.”
Her lawyers have also called the bank’s investigations into Frank’s data part of a baseless attempt to deny her compensation while indicating that any business problems with Frank were not of Javice’s making.
“JMPC’s acquisition of Frank did not go as planned,” Javice’s lawyers wrote in February. “But this was not Ms. Javice’s fault.”
Accused of planning to defraud
The dispute involved users and data centers on Frank’s signature tool, “Easy FAFSA,” which Frank said was designed to streamline and simplify the Department of Education’s free application for federal student aid. After launching his FAFSA tool, Frank’s website later grew to include free articles on education and financial literacy.
“This content increasingly enticed users to visit the website to use these resources, even if they did not then complete the Easy FAFSA® application,” Javice’s lawyers wrote in February.
But attorneys with JPMorgan argue that when Javice provided a spreadsheet with a column titled “FAFSA in Process,” it indicated that more than 4.25 million students had opened accounts with Frank and provided detailed personal information to support it.
Federal authorities believe the fraud went beyond a mislabeled spreadsheet column and that Javice was trying to get his engineering manager to fabricate a data set. Javice then went to an outside data scientist to generate the false data, according to allegations in prosecutors’ indictment against her.
Bank alludes to “mistake”
JPMorgan Chairman and CEO Jamie Dimon was asked about the Frank deal in an interview earlier this year. While he declined to discuss the case specifically, Dimon suggested the acquisition was a “mistake.”
“There are always lessons,” he told CNBC. “We will always make mistakes. I tell our people, if we make mistakes, it’s OK. But I don’t want our people to be afraid of making mistakes.”
Prosecutors must now prepare an indictment to move the criminal case forward, former federal prosecutor Indira Cameron-Banks told ABC News.
“It could be that there’s more investigation or there was some concern about some evidence or something,” Cameron-Banks said. “We don’t know, and I expect we’ll find out more in the next month or so.”
The clock is ticking for the government to present its findings to a grand jury, which is no small task given the complexity of the case, she said.
JPMorgan spokesman Pablo Rodriguez said in a statement that “our legal claims against Javice … are set forth in our complaint, along with the most important facts. This dispute will be resolved through the legal process.”
Rodriguez declined to answer specific questions about JPMorgan’s acquisition review processes and how those processes may have changed since the Frank purchase.
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