Federal prosecutors have filed fraud charges against Charlie Javice, the 31-year-old founder of defunct student loan software company Frank, and law enforcement has arrested Javice.
U.S. authorities stated on Tuesday that they had detained Javice, one of Forbes’ “30 under 30” for 2019. Javice was taken into custody in New Jersey on Monday. She has been hit with four charges: three counts of fraud and one count of conspiracy.
The SEC has filed a civil complaint against Javice, saying that she fabricated client data and falsely claimed to have 4 million customers to get JPMorgan Chase to buy her company for $175 million in 2021.
Soon after receiving his degree from Penn, Javice created the student aid support tool, Frank. According to the Justice Department, Javice received $21 million for selling her stock investment in Frank as part of the deal to sell the firm to the banking behemoth, in addition to a position as a managing partner at JPMorgan Chase and a $20 million retention bonus. Law enforcement investigators estimate that she may have made $45 million from the plan.
U.S. Attorney Damian Williams said in a statement that the arrest should serve as a warning to business owners who lie to develop their companies.
The SEC alleges that JPMorgan was keen to acquire Frank because the company claimed to have contact information (names, emails, and phone numbers) for more than 4 million students.
Authorities, however, claim the figures were fabricated. According to the SEC’s complaint, Frank only had information on roughly 300,000 clients, and Javice fabricated the remaining 4.2 million with the help of a local data science professor.
A senior executive at Frank, who was not named in the complaint, and Javice “engaged in a months-long plan to fake the data that both of them knew JPMC was paying $175 million to acquire,” according to the allegations. With counsel, Javice refuted the charges.
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JPMorgan Chase Discovers Fraudulent Activity
A failed test marketing effort directed at Frank’s fictitious consumers alerted the bank to the possible fraud. Frank’s internal records were seized by JPMorgan Chase, and the bank quickly discovered emails in which Javice requested the professor create “fake data” for 4.2 million users and discussed buying user datasets from a data broker.
According to Gurbir Grewal, director of the SEC’s enforcement division, “we argue that Ms. Javice engaged in an old school scam” rather than assisting students. Even private, start-up businesses must be forthright, and when they fail to do so, regulators will bring them to account, as happened here.
Last year, Javice was sued by JPMorgan Chase, and she filed a countersuit, both for fraud. Javice is no longer a part of the bank’s staff.
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