Charlie Javice, Millennial CEO Sued by JPMorgan, Charged in $175 Million Fraud

Charlie Javice, the millennial tech CEO featured on Forbes’ 30 Under 30, was indicted Tuesday for allegedly falsely inflating her startup’s user base before selling it to JPMorgan Chase for $175 million.

Javice, 31, is charged with conspiracy to commit bank and wire fraud, wire fraud affecting a financial institution and wire fraud, Manhattan federal prosecutors said Tuesday. The Securities and Exchange Commission also charged Javice on Tuesday with fraud in connection with the scheme.

She was arrested Monday night in New Jersey and is expected in court Tuesday afternoon. The once-rising tech star now faces decades in prison.

Prosecutors allege the bank bought Javice Frank’s startup in 2021 after the entrepreneur allegedly duped JP Morgan Chase into believing the company had more than 4 million users. In reality, the startup once billed itself as “an Amazon for higher education” and backed by billionaire Marc Rowan, had fewer than 300,000 customers.

“We don’t want to end up with orange jumpsuits,” the criminal complaint says Javice emailed her original engineer after requesting a false lead shortly before the sale.

U.S. Attorney Damian Williams said in a statement Tuesday that Javice “engaged in a brazen scheme to defraud JPMC during a $175 million purchase deal…[and] outright lied to JPMC and fabricated data to support those lies – all to gain over $45 million from the sale of her company.”

“This arrest should serve as a warning to entrepreneurs who lie to advance their businesses that their lies will catch them and this office will hold them accountable for putting their greed above the law,” he added.

The charges against Javica come just months after JPMorgan Chase filed a lawsuit against the entrepreneur over her startup Frank — also known as Frank Financial Aid — in a move that sent shockwaves through the fintech community still reeling from the fall of wunderkinds Sam Bankman -Frid and Elizabeth Holmes.

Javice has countersued JPMorgan Chase, arguing that the financial institution should cover her legal fees related to the recent months of internal investigations.

“Charlie denies the allegations,” a spokesperson for her attorney Alex Spiro, who had no additional comment, told the Daily Beast. A spokesman for JPMorgan Chase declined to comment.

Former federal prosecutor Neama Rahmani told the Daily Beast on Tuesday that one factor in Javice’s case is that the victim of the fraud, in this case, is a large bank like JP Morgan. But he noted that “after Elizabeth Holmes was charged and convicted, it was clear that the Department of Justice would investigate and prosecute these types of fraud cases.”

“When tech start-ups fabricate data and outright lie, it’s hard for even sophisticated outsiders to know what the truth is,” he added. “Javice will have a hard time defending this case because the numbers don’t lie, and if she is convicted, her potential sentence will go through the roof because the amount of fraud was so high.”

As previously reported by The Daily Beast, the startup and Javice were already in hot water before the JPMorgan Chase lawsuit. Since 2017, Javice has faced a lawsuit in Israel for allegedly wrongfully terminating an employee and defrauding him out of millions. It was also forced to change the name of Frank’s website after the Department of Education accused the startup of misleading students into believing it was affiliated with the government.

The Federal Trade Commission also investigated Javice and Frank for possibly defrauding college-age students over COVID relief. (It was not immediately clear whether Javice responded to the FTC, and the agency previously declined to comment.)

According to the criminal complaint unsealed Tuesday, Javice allegedly “engaged in a scheme calculated to falsely and dramatically inflate the number of clients at her company, Frank, in order to fraudulently induce” JPMorgan to acquire it. that for millions.

Initially, the complaint says, two banks were interested in buying Frank in 2021 and began the acquisition process. At the time, Javice said Frank had 4.25 million users who had provided their personal information after signing up for an account. When JPMorgan allegedly tried to verify Frank’s users, Javice “created a data set,” the complaint states.

“To do this, Javice approached a data scientist and hired him to create an artificially generated data set,” prosecutors allege in the complaint. “Subsequently, Javice ensured that the synthetic data was placed with an agreed-upon third-party vendor in an effort to confirm [JPMorgan] that the dataset had over 4.25 million rows, consistent with Javice’s misrepresentations.

The bank’s lawsuit alleges that Javice told the professor to send her an $18,000 bill for the data set.

Relying on Javice’s data set, the financial institution eventually agreed to buy the startup for $175 million—and hire the 31-year-old and other Frank employees, according to the complaint.

“Javice received over $21 million for the sale of its equity interest in Frank and, under the terms of the agreement, an additional $20 million was to be paid as a retention bonus,” the complaint states. The SEC investigation also revealed that Javice received $9.7 million directly in stock proceeds and millions more indirectly through trusts.

The complaint also details how Javice and an associate spent approximately $105,000 purchasing a dataset of 4.5 million students in order to “cover up their lies.” The new list, however, did not contain all the fields of data that Javice had previously sold to JPMorgan Chase — allegedly prompting the entrepreneur to buy another set of data on the open market.

JPMorgan executives realized something was wrong with the client list, ultimately prompting Javice’s termination in November 2022.

“Instead of helping the students, we claim that Ms. Javice engaged in an old-school scam: She lied about Frank’s success in helping millions of students navigate the college financial aid process by creating data to support her claims, and then used that false information. to induce JPMC to enter into a $175 million transaction,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement on Tuesday.

An early investor in Frank told The Daily Beast of Javice: “I feel bad that a good person is now in a lot of trouble, but it looks like they probably cheated him.”

In the world of high-profile startups like Theranos and FTX, “there’s a specter” of the idea of ​​faking it until you make it, they said.

“There’s no question that people in startups are always, you know, playing aggressively, and that playing aggressively can go a long way.”