Financial aid startup Frank founder fires back at JP Morgan Chase

(NEW YORK) — JP Morgan Chase faced new accusations from Charlie Javice, the young entrepreneur behind the student financial aid startup Frank, which the bank acquired in a $175 million transaction chief executive Jamie Dimon has since called “a huge mistake.”

Javice fired back on Monday, formally denying the bank’s fraud allegations and accusing JP Morgan of trying “to shift the blame for a failed and now-regretted acquisition to someone they view as an easy target: its young female founder.”

JP Morgan sued Javice in December alleging she “decided to lie” about how many customers Frank actually had and how successful it actually was in order to convince the bank to pay such a high price.

According to the lawsuit, Javice claimed more than 4.25 million students had created accounts to apply for federal student aid using Frank’s application tool. When the bank sought proof, the lawsuit claimed Javice fabricated a list of fake customers who did not actually exist.

“In reality, Frank was nearly 4 million short of its representations to JPMC,” the complaint said.

Javice has denied fabricating customer lists of knowingly submitting material false information. In her counterclaim, she called it “implausible” JP Morgan was led to believe Frank had 4.25 million registered users when its website publicly claimed the company had helped more than 350,000 people access financial aid.

The counterclaim also alleges that due diligence materials and readily available valuation data show the sophisticated bank could not have been misled about the value of the business.

“No one wanted to be held accountable,” Javice’s counterclaim filing said. “They needed someone else to point the finger at. And they found that person in Ms. Javice: an outsider whose youth and lack of institutional longevity made her an easy target.”

The counterclaim also alleges that, after changes in student aid rules made the business less viable, JP Morgan initiated pretextual investigations into her conduct and wrongly used false claims to terminate her for cause on the eve of the date on which she was due a significant payment under the terms of the acquisition deal.

Questioned about the Frank deal during an earnings call last month JP Morgan’s chief, Jamie Dimon, conceded it was “a huge mistake” but declined to elaborate during the ongoing lawsuit.

“I’ll tell you the lessons learned here when this thing is out of litigation,” Dimon said on the call.

JP Morgan accused Javice of enlisting a data science professor to fabricate a customer account list, an allegation she denied.

“JPMC cannot prove its outlandish claims, and Ms. Javice is confident she will prevail in this litigation. In the meantime, however, JPMC has compromised her reputation and wrongfully withheld $20 million in retention payments and approximately $7.9 million in an equity hold out from the Merger Agreement,” her filing said.

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