Charlie Javice, founder of the now defunct startup Frank, which purported to have helped more than 4 million college students to navigate the financial aid application process, has been arrested on federal charges of defrauding J.P. Morgan Chase of $175 million. Javice, who was listed on the Forbes 2019 “30 Under 30”, stood to gain over $45 million from the fraud. She was arrested Monday night in New Jersey.
“As alleged, Javice engaged in a brazen scheme to defraud JPMC in the course of a $175 million acquisition deal. She lied directly to JPMC and fabricated data to support those lies — all in order to make over $45 million from the sale of her company,” U.S. Attorney Damian Williams said in a prepared statement. “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.”
According to the Complaint unsealed today in Manhattan federal court, Javice founded Frank to offer an online platform designed to simplify filling out the Free Application for Federal Student Aid that students must complete to receive federal financial aid for college or graduate school. Javice sought an exit for the company through the sale to J.P. Morgan, which had been led to believe that by buying Frank, it would obtain a treasure trove of financial data on the 4.25 million customers Javice claimed to have. In reality, Frank had fewer than 300,000 users.
To satisfy J.P. Morgan’s due diligence into Frank, prosecutors allege Javice fabricated a data set. She and an association, identified by the government only as a co-conspirator (“CC-1”), asked Frank’s director of engineering to create an artificially generated data set (a so-called synthetic data set). The director of engineering raised concerns about the legality of the request, to which JAVICE responded, in substance and in part, “We don’t want to end up in orange jumpsuits.” The director of engineering declined the request.
Javice allegedly then hired an outside data scientist to create the synthetic data set, which she gave to an agreed-upon third-party vendor to convince JPMC that the data set had over 4.25 million rows. J.P. Morgan, relying on the data provided, agreed to purchase Frank for $175 million and to hire Javice and other Frank employees when the deal was completed. Javice received over $21 million for selling her equity stake in Frank and, per the terms of the deal, was to be paid another $20 million as a retention bonus.
What J.P. Morgan didn’t know was that Javice and CC-1 were trying to purchase real data for over 4.25 million college students. They ultimately succeeded in purchasing a data set of 4.5 million students for $105,000, but it did not contain all the data fields that Javice had told J.P. Morgan were maintained by Frank, so she returned to the open market to purchase an additional data set to fill in the empty fields. The scheme was not revealed until the deal was completed, and J.P. Morgan requested all of the data for a marketing campaign. The bank later sued Javice.