JP Morgan Chase is suing startup founder for fake clients

In December 2022, JP Morgan Chase filed a lawsuit against Charlie Javice, the 30-year-old founder of fintech startup Frank, who bought the bank for $175 million. Morgan claims that Javice misled the company regarding Frank’s value by faking a huge list of clients to convince Morgan it was a valuable purchase.

The Wall Street Journal reports that Morgan filed the lawsuit in Delaware, citing Javice and fellow Frank exec Olivier Amar. Court documents show an alleged deception that began in 2021 when Javice approached the bank about an acquisition, claiming that Frank had 4.25 million users. At the time, the company had just under 300,000 users.

Here’s more from WSJ:

“Instead of revealing the truth, Javice pushed through first [JPMorgan’s] request, arguing that she was unable to share her client list due to privacy concerns,” the bank said in its lawsuit. [JPMorgan] insisted, Javice chose to fabricate several million Frank customer accounts out of whole cloth.

Javice — who fired Morgan in November 2022 — launched her own legal claim in Delaware a few days before Morgan sued her. In her lawsuit, she says Morgan owes her millions in compensation for the money she spent on her defense when Morgan began internal investigations.

According to Javice, Morgan “intentionally fabricated a termination in bad faith”. She also says Morgan is avoiding paying her $28 million in connection with Frank’s original acquisition.

Javice launched Frank in 2016. The company wanted to simplify the student loan application process and Javice reportedly wanted to make it “Amazon for Higher Education”. Her vision was powerful enough to gain support from many notable VCs and Frank’s lead investor, billionaire Marc Rowan.

As described in court documents, the alleged deception was anything but incidental. It was prompted by Morgan’s request for Javice to prove that Frank had the claimed number of subscribers. The lawsuit alleges that Javice first refused, citing privacy concerns, and then not only fabricated the names of fake clients, but also added “addresses, dates of birth and other personal information for 4.265 million ‘students’ that didn’t really exist.”

Javice allegedly got Amar involved in the scheme when they paid a data science professor $18,000 to create the fake list. In the end, should Morgan’s case turn out to be true, the scam may have unraveled because the list was at detailed. The “other personal information” cited in court documents included email addresses.

WSJ reports that JP Morgan knew something was wrong when it launched an email campaign using the same addresses, and that 70% were undeliverable.