Federal regulators say the founder of student financial aid company Frank defrauded America’s biggest bank.
Charlie Javice was charged Wednesday (April 4) by the Securities and Exchange Commission (SEC) with fraud in connection with her $175 million sale of Frank to JPMorgan Chase in 2021.
According to the SEC, Javice carried out a scheme to dupe JPMorgan (JPM) into thinking Frank had access to data on 4.25 million students who used its service, though the true number was below 300,000.
“Rather than help students, we allege that Ms. Javice engaged in an old school fraud,” SEC Enforcement Division Director Gurbir S. Grewal said in a press release.
“She lied about Frank’s success in helping millions of students navigate the college financial aid process by making up data to support her claims, and then used that fake information to induce JPMC to enter into a $175 million transaction.”
Meanwhile, the Department of Justice has charged Javice, 31, of Miami Beach, Fla., with bank fraud, wire fraud and securities fraud. She faces decades in prison if convicted.
“This arrest should warn entrepreneurs who lie to advance their businesses that their lies will catch up to them, and this Office will hold them accountable for putting their greed above the law,” said U.S. Attorney Damian Williams.
The SEC alleges Javice made several misrepresentations about her company’s user numbers to attract the bank. When J.P. Morgan pressed her for customer data, Javice allegedly asked Frank’s director of engineering to doctor data to make it appear as if the company had 4.25 million customers.
The director refused, the SEC alleges, leading Javice to pay a data science professor to manufacture the data needed to close the deal.
As PYMNTS reported in January, Javice is already facing a civil lawsuit from J.P. Morgan on the same grounds. The banking giant shut down Frank earlier this year as it accused Javits and fellow executive Olivier Amar of inflating the platform’s numbers.
Javice’s attorneys contend that JPMorgan Chase failed to perform due diligence, rushed into the deal and began an internal investigation of the transaction as an excuse to fire Javice and deny her a retention bonus.
JPM bought Frank in 2021 to add the company’s tools for students, part of CEO Jamie Dimon’s plan for the bank to be “much more aggressive” in its approach to acquisitions.
Frank was launched to help connect students with financial aid before they start taking on large amounts of debt, Javice told PYMNTS in an interview in 2019.
She argued students didn’t need another loan product, but rather someone to help them avoid leaving money on the table as they amassed large debts.