JPMorgan JPM 0.74% Chase & Co. is suing the executives of Frank, a financial aid company it bought for $175 million in 2021, alleging they deceived the bank by creating millions of fake student accounts in order to show that they have a growing business.
The bank filed a lawsuit against Frank executives, Charlie Javice and Olivier Amar, in federal court in Delaware late last month, alleging widespread fraud at a company used to help families navigate the complex process of study financing is marketed. Frank offered a tool to simplify federal grant forms, listings of scholarships, and low-cost college courses.
Ms. Javice approached JPMorgan in the summer of 2021 over a potential acquisition, according to the lawsuit. She claimed Frank had 4.25 million users, the bank said. The company has fewer than 300,000 real users, the lawsuit said, less than 10% of the stated 4.25 million.
“Instead of revealing the truth, Javice pushed back at first [JPMorgan’s] request and argued that it could not share its customer list for privacy reasons,” the bank said in its court filing. “After [JPMorgan] insisted Javice chose to invent millions of Frank customer accounts out of one piece of cloth.”
Ms. Javice filed a separate lawsuit against JPMorgan in Delaware state court days before the bank sued her, saying she was owed millions of dollars for expenses incurred defending herself against internal investigations , which began last spring. That suit said she was fired from the bank in November.
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She called the investigation “groundless” and said the bank had “made a bad faith termination for good cause.” She said the bank is avoiding $28 million in payments due to it as a result of the deal.
Alex Spiro, an attorney representing Ms Javice, called JPMorgan’s lawsuit “nothing but a cover”.
“After JPM rushed to take over Charlie’s rocket business, realizing they could not circumvent existing student privacy laws, JPM committed wrongdoing and then attempted to reverse the deal. Charlie whistled and then complained,” he said.
Mr. Spiro was on the other side of a lawsuit over fake user accounts last summer, representing Elon Musk in a lawsuit that Twitter Inc. misled the public about spam and fake accounts.
Mr Amar could not be reached for comment.
A spokesman for JPMorgan said the matter would be resolved in court, adding that Ms Javice “was not and is not a whistleblower”.
JPMorgan said when the bank asked for a customer list, Ms Javice and Mr Amar hired a data science professor to create a list of fake names and addresses to trick the bank. The unnamed professor, who was paid $18,000, used computer-generated information to show Frank’s alleged user base, including details such as names, birthdays and schools attended, according to the lawsuit.
The court filing includes excerpts from what JPMorgan says, email exchanges between the professor and Ms. Javice detailing how best to falsify credible customer information.
“Our plan was to examine first names and surnames independently and then make sure none of the names examined were real,” claims the professor, who wrote to Ms Javice.
The startup also bought a list of 4.5 million student names from a marketing firm to help its deception after the deal closed, JPMorgan said.
In a September 2021 press release detailing the acquisition, JPMorgan called Frank “the fastest growing college financial planning platform” and said the deal would help grow relationships with younger clients.
The bank said the fake user scheme was unraveled when it launched an email marketing campaign. Messages sent to more than 70% of addresses claiming to be Frank customers weren’t delivered successfully, JPMorgan said.
—Jim Oberman contributed to this article.
Corrections & Enhancements
The fewer than 300,000 users the financial aid platform Frank had when the bank bought it, according to a JPMorgan lawsuit, is less than 10% of the 4.25 million that Frank executive Charlie Javice has cited. A previous version of this article incorrectly stated that the figure of 4.25 million exaggerated the actual number by more than 90%. (Corrected on January 11)
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