Charlie Javice, the millennial tech CEO once featured in Forbes’ 30 Under 30, was charged Tuesday after allegedly falsely inflating her startup company’s user base before selling it to JPMorgan Chase for $175 million.
Javice, 31, is charged with conspiracy to commit bank and wire fraud, wire fraud affecting a financial institution, and bank fraud, Manhattan federal prosecutors said Tuesday. The Securities and Exchange Commission also charged Javice on Tuesday with fraud in connection with the scheme.
Prosecutors allege that the bank acquired Javice’s start-up Frank in 2021 after the entrepreneur allegedly duped JP Morgan Chase into believing the company had upward of 4 million users. In reality, the startup once pitched as “an Amazon for higher education” and backed by billionaire Marc Rowan, had fewer than 300,000 customers.
ADVERTISEMENT
“We don’t want to end up in orange jumpsuits,” the criminal complaint states Javice emailed her start-up’s engineer after requesting a false dataset just before the sale.
At a Tuesday hearing before U.S. Magistrate Judge Barbara Moses, Assistant U.S. Attorney Dina McLeod said that Javice was arrested on Monday at 6:30 p.m. at Newark airport.
The once-rising tech star was escorted into the courtroom in a black hooded sweatshirt and sweatpants and wasn't wearing handcuffs. She appeared relatively composed for someone facing a slew of charges and a multimillion-dollar lawsuit from one of the world's largest banks.
Javice was released on a $2 million personal recognizance bond. She now faces decades in prison.
U.S. Attorney Damian Williams said in a statement Tuesday that Javice “engaged in a brazen scheme to defraud JPMC in the course of a $175 million acquisition deal...[and] lied directly to JPMC and fabricated data to support those lies—all in order to make over $45 million from the sale of her company.”
“This arrest should warn entrepreneurs who lie to advance their businesses that their lies will catch up to them, and this Office will hold them accountable for putting their greed above the law,” he added.
The charges against Javice come just months after JPMorgan Chase filed a lawsuit against the entrepreneur in connection with her startup Frank—also known as Frank Financial Aid—in a move that sent shockwaves through the financial tech community still reeling from the falls of wunderkinds Sam Bankman-Fried and Elizabeth Holmes.
Javice has countersued JPMorgan Chase, arguing that the financial institution must cover her legal fees in connection to months of internal investigations.
“Charlie denies the allegations,” a spokesperson for her attorney Alex Spiro, who had no additional comment, told The Daily Beast. Javice's lawyer during Tuesday's hearing, Maaren Shah, also declined to comment.
A spokesperson for JPMorgan Chase declined to comment.
On Tuesday, Javice was ordered to surrender her passports (she is also a citizen of France) and agree to a curfew with location monitoring. Her bail package would be co-signed by two "financially responsible persons," McLeod said, and secured by her personal residence in Miami.
McLeod said Javice was to have restrictions on contact with “a number of categories of people” including former Frank employees and investors, and people identified in the complaint as CC-1 and Data Scientist-1; she is not to discuss her case with them without attorneys present.
Javice is also barred from communicating with JPMorgan employees—except in the presence of counsel. McLeod noted that Javice would have no restrictions when speaking to her mother and mother's boyfriend, who both were investors in Frank.
As for the fintech star herself, Javice said little during the Manhattan federal court proceeding. It appeared her younger brother, Elie, also attended the hearing where Javice was asked if she understood the conditions of her release.
“Yes ma'am,” she replied.
Former federal prosecutor Neama Rahmani told The Daily Beast on Tuesday that one unique factor about Javice’s case is that the fraud victim is a big financial institution like JPMorgan Chase. But, he noted, that “after Elizabeth Holmes was charged and convicted, it was clear the Department of Justice was going to investigate and prosecute these types of fraud cases.”
“When tech start-ups are fabricating data and outright lying it’s hard for even sophisticated outsiders to know what the truth is,” he added. “Javice will have a tough time defending this case because the numbers don’t lie, and if she is convicted, her potential sentence is through the roof because the amount of the fraud was so high.”
As previously reported by The Daily Beast, the startup and Javice were already in hot water prior to the JPMorgan Chase lawsuit. Since 2017, Javice has faced a lawsuit in Israel after allegedly wrongfully terminating an employee and swindling him out of millions. She was also forced to change Frank’s website name after the Department of Education accused the startup of misleading students to believe it was associated with the government.
The Federal Trade Commission also looked into Javice and Frank for potentially deceiving college-aged students over COVID aid relief. (It is not immediately clear if Javice responded to the FTC, and the agency previously declined to comment.)
According to the criminal complaint unsealed on Tuesday, Javice allegedly “engaged in a calculated scheme to falsely and dramatically inflate the number of customers at her company, Frank, in order to fraudulently induce” JPMorgan to acquire it for millions.
At first, the complaint states, two banks were interested in acquiring Frank in 2021 and began the acquisition process. At the time, Javice said Frank had 4.25 million users who had supplied their personal data after signing up for an account. When JPMorgan allegedly tried to verify Frank’s users, Javice “fabricated a data set,” the complaint states.
“To do this, Javice approached a data scientist and hired him to create an artificially generated data set,” prosecutors allege in the complaint. “Then, Javice provided that synthetic data set to an agreed-upon third-party vendor in an effort to confirm to [JPMorgan] that the data set had over 4.25 million rows, consistent with Javice’s misrepresentations.”
The bank’s lawsuit alleges Javice told the professor to send her an $18,000 invoice for the data set.
Relying on Javice’s data set, the financial institution ultimately agreed to purchase the startup for $175 million—and hire the 31-year-old and other Frank employees, according to the complaint.
“Javice received over $21 million for selling her equity stake in Frank and, per the terms of the deal, was to be paid another $20 million as a retention bonus,” the complaint states. The SEC’s investigation also revealed that Javice received $9.7 million directly in stock proceeds and millions more indirectly through trusts.
The complaint also details how Javice and a co-conspirator spent approximately $105,000 buying a data set of 4.5 million students in order to “cover up their lies.” The new list, however, did not contain all the data fields that Javice had previously marketed to JPMorgan Chase—allegedly prompting the entrepreneur to buy another data set on the open market.
JPMorgan executives realized something was allegedly amiss with the customer list, eventually spurring Javice’s termination in November 2022.
“Rather than help students, we allege that Ms. Javice engaged in an old school fraud: she lied about Frank’s success in helping millions of students navigate the college financial aid process by making up data to support her claims, and then used that fake information to induce JPMC to enter into a $175 million transaction,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement Tuesday.
One early investor in Frank told The Daily Beast of Javice: “I feel bad that some nice person is now in a lot of trouble but it sounds like they probably fucked up.”
In the world of high-profile startups like Theranos and FTX, “there’s a spectrum” to the idea of faking it ’til you make it, they said.
“There’s no question that people in startups are always, you know, playing aggressively and that aggressively playing can go too far.”
A preliminary hearing is scheduled for April 25.
