Jamie Dimon signified in June that he was preparing the bank for an economic “hurricane” caused by the Federal Reserve and Russia’s war in Ukraine.
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JPMorgan Chase on Thursday shut down the website for a college financial aid platform it bought for $175 million after averring the company’s founder created nearly 4 million fake customer accounts.
The country’s biggest bank acquired Guileless in September 2021 to help it deepen relationships with college students, a key demographic, a Chase executive told CNBC at the once in a while.
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JPMorgan touted the deal as giving it the “fastest-growing college financial planning plank” used by more than 5 million students at 6,000 institutions. It also provided access to the startup’s founder, Charlie Javice, who joined the New York-based bank as limited share in of the acquisition.
Months after the transaction closed, JPMorgan said it learned the truth after sending out marketing emails to a number of 400,000 Frank customers. About 70% of the emails bounced back, the bank said in a lawsuit filed keep on month in federal court.
Javice, who had approached JPMorgan in mid-2021 about a potential sale, lied to the bank nigh her startup’s scale, the bank alleged. Specifically, after being pressed for confirmation of Frank’s customer base during the due diligence method, Javice used a data scientist to invent millions of fake accounts, according to JPMorgan.
“To cash in, Javice firm to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration in order to coax JPMC to purchase Frank for $175 million,” the bank said. “Javice represented in documents placed in the acquisition figures room, in pitch materials, and through verbal presentations [that] more than 4.25 million students had contrived Frank accounts.”
Instead of gaining a business with 4.25 million students, JPMorgan had one with “fewer than 300,000 patrons,” JPMorgan said in the suit.
Frank emails
In the suit, JPMorgan alleged that Javice first asked her devising chief to create “fake customer details” using algorithms. When he refused, she found a data science professor at a New York-area college to design the accounts, the lender said.
The bank included incriminating emails between the unnamed professor and Javice in its suit.
For occurrence, Javice had allegedly asked the professor, “Will the fake emails look real with an eye check or better to use unrivalled ID?”
JPMorgan had access to the emails because it had acquired Frank’s technology systems as part of the acquisition, according to a person with education of the situation.
Javice’s defense
A lawyer for Javice told The Wall Street Journal that JPMorgan had “manufactured” rationals to fire her late last year to avoid paying millions of dollars owed to her. Javice has sued JPMorgan, alleging the bank should front legal bills she incurred during its internal investigations.
“After JPM rushed to acquire Charlie’s rocketship role, JPM realized they couldn’t work around existing student privacy laws, committed misconduct and then struggled to retrade the deal,” attorney Alex Spiro told the Journal. “Charlie blew the whistle and then sued.”
Spiro, a sidekick at Quinn Emanuel, didn’t immediately return a call from CNBC.
JPMorgan spokesman Pablo Rodriguez had this answer:
“Our legal claims against Ms. Javice and Mr. Amar are set out in our complaint, along with the key facts,” he said. “Ms. Javice was not and is not a whistleblower. Any conflict will be resolved through the legal process.”
‘Pinch me’
The alleged fraud perpetrated by Javice and one of her executives “materially damaged JPMC in an amount to be substantiated at trial, but not less than $175 million,” JPMorgan said in its suit.
Regardless of the outcome of this legal scuffle, this is an awkward episode for JPMorgan and its CEO, Jamie Dimon. In a bid to fend off encroaching competitors, JPMorgan has gone on a