JP Morgan paid $175 million for a startup it believes it was conned into buying. Now, amid an ongoing legal battle, it’s got to clean up a very public mess.
Last September, days after JP Morgan suspended Charlie Javice, the founder of Frank—a fintech startup it had acquired a year earlier for $175 million—the biggest bank in the country was touting her business to its staff.
For months, JP Morgan had been investigating Javice for troubling issues related to the acquisition of what it had lauded as “the fastest growing college financial planning platform.” The bank would soon sue her for fraud, alleging she had fabricated a list of more than 4 million fake customers to sway it into buying her company. Yet on September 15, as investigators combed through her Frank files, and both sides argued about who’d pay what legal fees, an email promoting an “exclusive” event that Javice was headlining landed in the inbox of tens of thousands of JP Morgan bankers, according to internal materials obtained by Forbes. “Mission: Tuition,” said the memo from JP Morgan Asset Management, offering U.S. employees expert guidance on “navigating financial aid with Frank.”
“Learn how you can help cover the costs for children, grandchildren, nieces, nephews or any other loved ones,” said the invitation to the September 22 panel, where Javice—who’d already been placed on administrative leave—was set to speak alongside two of the bank’s executives who specialize in education savings. “Our experts will share tips on saving more for college and introduce you to Frank, our new financial aid and scholarship tool.” (Bold emphasis, theirs.)
The event was postponed without explanation on September 20, a week after Javice had been suspended. She would be terminated in November for allegedly inventing an enormous roster of bogus Frank customer accounts—with the help of her second-in-command Olivier Amar, who is also being sued, and a local data science professor. JP Morgan claims they did this “to fraudulently induce JPMC to enter into the Merger,” per its suit filed in December in U.S. District Court in Delaware. Javice and Amar, through their lawyers, did not respond to requests for comment. Javice is a Forbes 30 Under 30 alum.
Now, with the 30-year-old former Frank CEO required to respond to JP Morgan’s federal fraud complaint on March 1, and in the wake of bank Chairman Jamie Dimon publicly deriding the deal as “a huge mistake,” the financial giant continues to deal with the fallout.
The chaos has shaken up the bank’s team focused on student products. JP Morgan brought on fifteen Frank employees as part of the 2021 acquisition, in positions ranging from mid-level associates to executive-level managing directors. But following its investigation into Frank and subsequent lawsuit accusing Javice and Amar of fraud, at least six longtime members of Frank’s team are no longer employed by JP Morgan, a current employee at the firm told Forbes.
That includes Javice and Amar, who were both fired late last year. A person at JP Morgan familiar with the matter confirmed that roughly half the team is gone since the acquisition but declined to say whether the other Frank employees were terminated or departed voluntarily (Forbes is omitting their names to protect their privacy). With the legal battle underway and Frank’s product and website axed, the remaining half of the Frank team that had joined JP Morgan has scattered. Some have transitioned to work on the bank’s broader efforts to build tools for students, while others have moved to different roles at the firm altogether, according to the person familiar.
“Our legal claims against Ms. Javice and Mr. Amar are set out in our complaint, along with the key facts,” JP Morgan spokesperson Pablo Rodriguez said in a statement. “Any dispute will be resolved through the legal process.”
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Javice and Amar are simultaneously suing JP Morgan in Delaware Chancery Court, each fighting separately to get JP Morgan to cover their mounting legal fees. Javice’s complaint claims the company “manufactured a for-cause termination in bad faith” and “worked to force Ms. Javice out” to deny her millions in compensation that she was owed.
JP Morgan has been tight-lipped about the extent of the due diligence it conducted before buying Frank and forking over millions to its leaders. But in its own telling of the story, the process began when a principal of one of Frank’s most prominent investors contacted an executive in the Corporate & Investment Bank singing the startup’s praises. The investor, who in an email included a link to an article about Frank’s apparent success, said it was “getting real inbound interest and [I] thought someone at JPM should have a look,” per the complaint. The executive forwarded the message to Leslie Wims Morris, JP Morgan’s Head of Corporate Development, who “responded that she would be happy to meet with Frank” as the bank considered whether a partnership or merger could further its goal of reaching more students, the complaint says.
“After conducting several meetings with Javice to learn about Frank’s business, JPMC initially opted not to pursue a transaction,” it says. But later that year, “following renewed contacts from Frank and its investment bank LionTree Advisors,” the deal was back on the table. (Javice’s complaint recollects it differently: “Chase pursued Frank aggressively when it learned that Frank was talking with one of its competitors.”) LionTree declined to comment.
Due diligence began in July 2021 at JP Morgan’s Madison Avenue offices in New York City and included “numerous representatives of JPMC, Frank, and LionTree,” according to the bank’s complaint. (Javice’s says JP Morgan had involved “hundreds of its employees.”) The head of corporate development, Wims Morris, remained part of that process. Due diligence appears to have spanned about one month in the summer of 2021 before the deal went through, to much fanfare, that September. With that, most of Frank’s employees joined JP Morgan as associates and vice presidents of “student solutions”. At the helm was Javice, as head of that group and a managing director—one of JP Morgan’s youngest ever.
By January, JP Morgan executives were questioning Javice, Amar and others from Frank about its customers, according to the bank’s complaint. When JP Morgan asked Javice and Amar for Frank’s student list so it could run a test marketing campaign, it took Javice and Amar almost three weeks to hand over that list, it says. The complaint alleges that they provided data culled from third-party vendors, so that when JP Morgan ultimately sent out the test email blast to what it thought were 400,000 Frank customers, only about a quarter of the emails were delivered, and of those, just 1 percent were opened. The “disastrous” results led JP Morgan to open “a comprehensive investigation into Frank and the Merger” in June 2022.
Its lawsuit would later reveal that early in Javice’s alleged scheme, she had asked a top Frank engineer for help creating what JP Morgan claims was the “fake customer list”. She allegedly reassured the staffer, who questioned whether using such data as part of the potential deal was legal, that “she did not believe that anyone would end up in an ‘orange jumpsuit’ over this project.” (According to the complaint, she turned to the data science professor after her engineer declined to help.)
The engineer, who was later brought on by JP Morgan as part of the acquisition, still works there. The professor, with whom Javice allegedly floated a full-time position at the bank once the deal went through, never did.
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Source: https://www.forbes.com/sites/alexandralevine/2023/02/27/jp-morgan-charlie-javice-frank/