JP Morgan says fintech fabricated millions of customers and sues founder

The financial giant acquired the startup in October 2021 and closed it this week after allegedly discovering millions of fake accounts.

JP Morgan Chase is suing the founder of Frank, a US college financial aid fintech it acquired for $175m in 2021.

According to the bank, the Marc Rowan-backed fintech falsely claimed to have more than four million customers, when it in fact had fewer than 300,000 at the time of acquisition.

Frank, which has since been shut down, was a tool that offered to simplify the process of applying for federal financial aid alongside providing a resource of scholarships and low-cost college courses.

The 30-year-old founder and former CEO, Charlie Javice, allegedly fabricated a list of users, complete with “names, dates of birth, phone numbers, mailing addresses, and email addresses”.

JP Morgan discovered the alleged fake customer accounts when marketing emails were sent to a batch of 400,000 customers and around 70 per cent bounced back.

Frank was pushed to prove its customer base during the diligence process, according to the bank, at which point Javice paid a data scientist $18,000 to invent the millions of fake accounts.

“Rather than reveal the truth, Javice first pushed back on JPMC’s request, arguing that she could not share her customer list due to privacy concerns,” it says in the lawsuit.

“After JPMC insisted, Javice chose to invent several million Frank customer accounts out of whole cloth.”

According to the lawsuit, Javice and her chief growth officer Olivier Amar first asked Frank’s director of engineering to create fake customer details using “synthetic data”, to which he asked whether the request was legal.

Javice sought to reassure the engineer that she was not asking him to engage in illicit conduct, but he was not persuaded and said he would only provide the actual list of data, which was for fewer than 300,000 accounts as of July 2021, the lawsuit states.

She then reportedly turned to an unnamed data science professor to create 4.265 million users.

Emails listed in the lawsuit show Javice asked the professor to “ensure none of the sampled names are real”.

The professor also asked of the physical addresses, “Should I attempt to fabricate them?” and said the fake data “would look fishy to [him] if [he] were to audit it”.

While Javice was working with the professor, Amar supposedly reached out to a marketing firm and purchased a list of 4.5 million students for $105,000 which arrived too late to be used in creating a fake customer list, but was later used to “further deceive” JP Morgan and to “cover their tracks” after the acquisition.

Javice has separately filed her own lawsuit against JP Morgan for legal fees she says she incurred while defending herself in internal investigations that began last spring.

Frank is one of a number of fintech acquisitions JP Morgan has made a series of over the past few years, alongside Nutmeg, Global Shares and Renovite.