JPMorgan Chase shut down the website for a college financial assistance network it purchased for $175 million on Thursday, claiming the company's founder established roughly 4 million bogus customer accounts.
In September 2021, JPMorgan purchased Frank to help it build relationships with college students.
JPMorgan lauded the transaction as providing it with the "fastest-growing college financial planning platform," which is utilized by over 5 million students at 6,000 institutions. It also gave the startup's creator, Charlie Javice, access to the New York-based bank as part of the deal.
JPMorgan claimed it discovered the deception months after the purchase was finalized after sending promotional emails to a group of 400,000 Frank customers. In a complaint it filed last month in federal court, the bank said that almost 70% of the emails bounced back.
Javice allegedly lied to JPMorgan about the size of her startup when she approached the bank in the middle of 2021 about a potential sale. Specifically, according to JPMorgan, Javice used a data scientist to create millions of fictitious accounts after being forced to provide proof of Frank's client base during the due diligence process.
"To cash in, Javice decided to lie, including lying about Frank's success, Frank's size, and the depth of Frank's market penetration in order to induce JPMC to purchase Frank for $175 million," the bank said. "Javice represented in documents placed in the acquisition data room, in pitch materials, and through verbal presentations [that] more than 4.25 million students had created Frank accounts."
According to Javice's lawyer, JPMorgan "manufactured" grounds to fire her late last year in order to avoid paying millions of dollars owed to her. Javice has filed a lawsuit against JPMorgan, claiming the bank owes her legal fees spent during internal probes.
"After JPM rushed to acquire Charlie's rocketship business, JPM realized they couldn't work around existing student privacy laws, committed misconduct and then tried to retrade the deal," attorney Alex Spiro told WSJ. "Charlie blew the whistle and then sued."
JPMorgan shut down Frank early Thursday morning as a result of the legal disputes.
According to the lawsuit, Javice first asked her engineering chief to construct "fake customer details" using algorithms. When he declined, she hired a data science professor at a New York-area college to set up the accounts, according to the lender.
In its claim, the bank uncovered incriminating emails between the anonymous professor and Javice.
According to a person familiar with the issue, JPMorgan had access to the emails since it had purchased Frank's technological systems as part of the transaction.
According to JPMorgan's lawsuit, the alleged fraud by Javice and one of her executives "materially damaged JPMC in an amount to be proven at trial, but not less than $175 million."
