Frank founder Charlie Javice was released on a $2 million bond after being charged with defrauding JPMorgan Chase in its $175 million acquisition of the college financial planning website by vastly inflating the number of its users.
Ms Javice, 31, “engaged in a brazen scheme to defraud” JPMorgan, Damian Williams, US attorney in Manhattan, said in a statement on 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 Ms Javice is convicted. She was also charged with securities fraud, which carries a 20-year prison term.
Ms Javice, who is a dual citizen of France and the US, lives in Miami. She was arrested on Monday at Newark Liberty International Airport and produced before the Manhattan federal court on Tuesday.
Ms Javice surrendered her US and French passports and her travel is now 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 will observe a curfew and is not permitted to contact witnesses or current JPMorgan or former Frank employees.
Alex Spiro, a lawyer for Ms Javice, and a JPMorgan representative declined to comment.
Earlier on Tuesday, Ms Javice was sued for fraud by the US Securities and Exchange Commission.
‘30 under 30’
Ms Javice founded Frank in 2017 as an online platform to help college students fill in the Free Application for Federal Student Aid, or Fafsa. Forbes named her on 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 is not named in the criminal complaint unsealed on Tuesday.
US attorney in Manhattan
She told both banks that Frank had 4.25 million customers who had signed up for accounts, according to the government. In reality, the authorities say Frank had fewer than 300,000.
Prosecutors claim that during the discussions with JPMorgan, Ms 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 is not identified, raised concerns, and said “I don’t want to do anything illegal”, according to the complaint.
Ms 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.
Ms 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 that the site had more than 4 million users in discussions with JPMorgan.
The bank, the nation’s largest, has been on a start-up buying spree since chief executive Jamie Dimon said in 2020 he wanted to acquire more financial technology companies focused on sustainable investing and tax issues.
JPMorgan, which acquired Frank in 2021, sued Ms 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, Ms Javice bought sets of data on 4.5 million college students on the open market, according to the lawsuit.
Due diligence
Mr Amar was not named as an accused in either of Tuesday’s complaints.
Earlier, he said in a bid to dismiss JPMorgan’s lawsuit that he was not a party to the merger agreement and attended no more than one meeting with the bank before the deal.
Ms Javice, who has sued JPMorgan in Delaware state court to force the bank to cover her legal fees, claims it rushed to buy Frank without doing proper due diligence and was also trying to deflect attention from its violations of student privacy laws.
Ms Javice said in a response to JPMorgan’s suit that Mr Dimon pushed to acquire Frank out of fear that another bank was looking at the company, that she was being made a scapegoat for the bank’s faulty due diligence and that it was JPMorgan that asked her to come up with synthetic data on Frank users.
Ms Javice and JPMorgan agreed to the sale in August 2021, and it closed the next month.
The deal called for Ms 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.
