Frank founder Charlie Javice hit with charges by SEC, feds
Federal prosecutors and the U.S. Securities and Exchange Commission on Tuesday filed criminal and civil fraud charges against the founder of Frank after the defunct student financial-aid assistance company was accused of deceiving JPMorgan Chase into a $175 million acquisition.
Why it matters: Once heralded as a star millennial entrepreneur, Charlie Javice stands accused of using an elaborate scheme to inflate Frank's customer base, thus landing a multimillion deal with the biggest name on Wall Street.
Driving the news: Javice faces three criminal fraud charges — including conspiracy to commit bank and wire fraud — and civil fraud charges for allegedly tricking JPM "into believing that Frank had access to valuable data on 4.25 million students who used Frank’s service," the SEC said in a statement.
- The actual number was fewer than 300,000, according to the U.S. Attorney for the Southern District of New York and the SEC.
The big picture: In January, JPMorgan Chase sued Frank, saying Javice had lied about the company's size.
- The SEC's Division of Enforcement director, Gurbir S. Grewal, on Tuesday called it "an old school fraud," saying Javice "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."
What they found: The SEC alleged in its complaint that Javice "paid a university professor to create fake data appearing to represent 4.25 million customers" and then gave that list to "a third-party validator, who in turn reported it to" Chase.
- Then, Javice and "another high-ranking Frank executive" launched a plan to "create a list of real names that they could pass off as Frank’s customers," paying $105,000 to a third-party "data compiler for its in-college student data" and $75,000 to "a different data compiler" to augment the list with emails and phone numbers, the SEC said.
- Chase discovered that the customer list was bogus when a marketing campaign targeting the borrowers "reached few of the intended recipients," the SEC said.
The other side: "Charlie denies the allegations," spokesperson Josh Ginsburg tells Axios in an email.
- In a countersuit filed against Chase in February, her attorneys accused the bank of "a massive 'CYA' effort'" designed to "shift the blame for a failed and now-regretted acquisition to someone they view as an easy target: its young female founder."
- Chase did not immediately respond to a request seeking comment Tuesday.
Of note: Of the four criminal fraud charges filed against Javice, three carry sentences of up to 30 years in prison.
- Meanwhile, the SEC wants Javice to be barred from leading a public company, and to be forced to pay back ill-gotten gains.
Editor's note: This story has been corrected to reflect that Josh Ginsburg is a spokesperson for Charlie Javice, not her attorney.