The sting that drives America crazy: 28-year-old raised $175 million from the richest bank in the US while allegedly defrauding 4 million customers
It’s a story worthy of a movie, but for the bank JPMorgan it’s mostly worth $175 million down the drain – the unfathomable story behind one of the strangest episodes Wall Street has ever seen
JP Morgan Chase closed on Thursday theThe cash tap for a young company that was supposed to help students find financial assistance for their studies online – and this after the famous bank paid approx.175 million dollars for its founder!
Now, the bank is suing the same founder (now 30 years old).for fabricating/inventing almost 4 million fake user accounts, which she used to entice the bank in mid-2021 to invest the huge sum.
Yes, it’s real
The company, ‘Frank’, was founded by former CEO Charlie Javis in 2016.
Frank offered software that would help young Americans obtain financial aid in what Javis described as the “Amazon for higher education,” and was even backed by billionaire Mark Rowan – the company’s leading investor.
JP Morgan favorably noted the deal it signed with the CEO in September 2021 as giving the bank a hold on “the fastest growing college financial planning platform” used by more than 5 million students at 6,000 institutions.
butA number of months after closing the deal, came the bizarre turn. When JP Morgan announced that it had discovered that in fact most of the company’s accounts were fabricated.
How did the bank find out? Well he sent emails to a group of 400,000 Frank customers – and 70% of them automatically returned!.
The lawsuit filed in Delaware court alleges that Javis made the “pitch” based on the “lie” that more than 4 million users had already registered with Frank to apply for federal student aid.
and then, When the bank asked for proof during due diligence, Javis fabricated a huge list of fake customers – including a list of names, addresses, dates of birth, and other personal details for 4.265 million ‘students’ who never existed” – In reality, Frank had fewer than 300,000 accounts at the time, according to the lawsuit.
“Javis initially denied JPMC’s (JP Morgan Chase) request for the database on the grounds that it could not share the client list due to privacy concerns.“, the lawsuit states, but “after JPMC insisted, Javis chose to make up millions of accounts.”
“In order toTo redeem the money, Javis decided to lie, including lyingRegarding Frank’s success, Frank’s size and the depth of market penetration.”
The goal was “to get JPMC to purchase Frank for $175 million,” the lawsuit continues.
“Javis showed in documents placed in the room the purchase data, materials, and verbal presentations [כי] More than 4.25 million students have created Frank accounts to begin applying for federal aid
Javis’s lawyer saidto the Wall Street Journal Because the bank simply “created” reasons to fire Petra last year to avoid paying millions – and because she was the one who originally sued JP Morgan.
“After JPMC rushed to purchase Charlie’s business, JPMC realized they could not circumvent existing student privacy laws, engaged in misconduct, and then attempted to renegotiate the deal,” said her attorney, Alex Spiro, ” “Rally the whistle-blower – and then the prosecution came”.
JP Morgan responded to these claims that: “Our legal claims against Ms. Javis are detailed in our lawsuit, along with the key facts… Ms. Javis did not and does not disclose corruption. Any dispute will be resolved through the legal process.”
The alleged fraud perpetrated by Jabis and one of its senior managers “substantially harmed JPMC in an amount that will be proven at trial, but no less than $175 million,” the lawsuit states.
Regardless of the outcome of this legal turmoil, this is an embarrassing episode for JP Morgan and its CEO, Jamie Dimon. In an attempt to fend off encroaching competitors, JP Morgan went on a company acquisition spree fintech in recent years, and Dimon has repeatedly defended his technology investments as necessary and as those that will yield good returns.
On Thursday morning, Frank’s website said: “Frank is no longer available”.
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