The founder of a financial aid website JPMorgan Chase bought for $175 million in September 2021 but closed this year after allegedly finding fake customer accounts now faces federal fraud charges.
Charlie Javice, the founder of the website, Frank, faces charges of "falsely and dramatically" inflating the number of customers using the website to induce JPMorgan's acquisition.
The U.S. Attorney's Office for the Southern District of New York and the New York Regional Office of the Federal Deposit Insurance Corp.'s (FDIC) Office of the Inspector General unsealed a criminal complaint Tuesday against Javice, 31, of Miami Beach, Fla. Federal authorities arrested her Monday night in New Jersey.
The complaint includes one count of conspiracy to commit bank and wire fraud, one count of wire fraud affecting a financial institution and one count of bank fraud.
Each of those counts carries a maximum sentence of 30 years in prison. An additional count of securities fraud carries a maximum 20-year sentence.
"As alleged, Javice engaged in a brazen scheme to defraud JPMorgan Chase in the course of a $175 million deal," said Damien Williams, U.S. Attorney for the Southern District. "She lied directly to JPMorgan Chase and fabricated data to support those lies—all in order to make over $45 million from the sale of her company."
Website Customers—Real or Imaginary?
The charges follow a suit JPMorgan filed against Javice in December, alleging she created fake customer accounts to satisfy due diligence questions preceding its purchase of the website.
Tuesday's complaint alleges during due diligence, JPMorgan sought to verify the number of Frank's customers and related data. Javice responded by allegedly asking Frank's director of engineering to create an artificially generated data set.
When the director of engineering raised concerns about the request, Javice allegedly responded, "We don't want to end up in orange jumpsuits." After the director declined the request, she found an outside vendor to create the artificial data set.
At the same time, she and an unnamed co-conspirator allegedly purchased actual data on 4.25 million students to help cover up the misrepresentation to JPMorgan.
Months after the deal, JPMorgan said it sent marketing emails to 400,000 supposed Frank customers. In its suit against Javice, the company said about 70% of those emails bounced back to the firm as non-deliverable.
The bank said at the time of the acquisition, Javice led it to believe Frank had 4.25 million customers when the site had fewer than 300,000. Tuesday's complaint reiterated those figures.
Javice has claimed JPMorgan sought reasons to fire her late last year to avoid paying millions of dollars it owed her, according to The Wall Street Journal. She sued the bank for misconduct to cover legal bills she incurred during the bank's internal investigation. JPMorgan disputes Javice's claims.