The startup that cheated JP Morgan – Economy

When we think of the JP Morgan Chase, there are several things that quickly come to mind:

  • “America’s Largest Bank”

  • “He owns the largest investment bank in the world”

  • “It manages nearly 4 billion (or trillion) dollars of assets”

  • “He has more experience in the financial markets than anyone, and his origins date back to the end of the 18th century”

This information is at the origin of the entire reputation of the American financial conglomerate and which makes it a cornerstone of the entire global financial system. That said, given its importance, it’s hard to imagine anyone cheating on this organization in any type of business, be it a corporate, investor, or individual user.

But that’s what “allegedly” happened to Charlie Javice and his startup, Frank. Founded in 2016, the company has positioned itself as a solution for the millions of American students who, each year, go through a complex application for loans from banks and other financial institutions in order to find a way to pay for their university studies. – and that’s where Frank’s software comes in, which made this whole process simple. At the same time, the company sought to be “an Amazon of higher education”, tackling a US market valued at 1.5 billion (trillion) dollars (2023).

turns out that the pitch was enough for Javice to start attracting the interest of several VCs such as Mark Rowan (of Apollo Global Management) and because in September 2021 JP Morgan Chase decides to acquire the company for 175 million dollars. With the purchase, the bank’s objective was to put Charlie Javice and the others Personal of Frank in charge of their dedicated student division so they can sell their platform along with other JP Morgan services. On paper, everything seemed logical because:

  • Javice was a graduate of Wharton, one of the most prestigious universities in the United States, and in 2019, she appeared on the Forbes “30 Under 30” list as one of the most promising young entrepreneurs.

  • According to the CEO, Frank had already recorded the processes of over 5 million students attending over 6,000 universities.

But it turned out that it wasn’t like that…

2022 ended with JP Morgan Chase removing Charlie Javice from his job and taking her to court for fraud. In the lawsuit, the bank alleges that Frank’s founder deliberately doctored the list of clients her startup hadin order to inflate the price that JP Morgan had to pay to acquire it.

Serious claims that, for Javice’s sins, seem to have plenty of evidence to back them up.

The bank’s suspicions began when it began testing marketing campaigns for its services to the “audience” it had gained from Frank: 4.265 million students. A test email sent to 400,000 users only managed to get delivered to a quarter of the sample, and of that group only 1% actually read it. Alarms were raised and a more serious investigation began. And here is a brief sequence of these “alleged” events:

  • Charlie Javice’s erratic behavior began in the due diligence process, when JP Morgan asked him to hand over Frank’s user list. The founder initially cited protecting his privacy as a reason for not doing so.

  • JP Morgan estimates that at the time it bought the startup it had no more than 300,000 active users, less than 10% of what it claimed in successive presentations it made to the bank and to investors. other investors. And that instead of telling the truth at all times, Javice consecutively chose to lie for his own benefit.

  • Charlie Javice used several schemes to introduce a user base he didn’t have: 1) he got a high-level engineer at Frank to fabricate the list; 2) paid 18,000 euros to a university professor in New York to create a list of 4 million users based on the number of users he already had with name, address, date of birth and other data; 3) asked its Chief of Growth, Oliver Amar, to purchase a database from a vendor”third party“, for 105 thousand euros. The list received by JP Morgan was a mixture of the last two.

  • Before all of this, Frank had already been the target of scrutiny from the US Congress and the FTC (US competition authority), for the malfunctioning of his platform and for a business model that seemed rather based on the sale of user data. to advertisers.

It’s a case to be said frankly

In response to JP Morgan’s accusation, Charlie Javice decided to fight back and also sue the bank. According to the businesswoman, all this is nothing more than a ploy to justify and conceal a breach of her contract in bad faith.

  • On the one handJavice believes the financial institution decided to get rid of Frank when it realized it wouldn’t be able to circumvent some privacy laws to take advantage of its user base.

  • For anotheris also a way for JP Morgan to escape the millionaire compensation that had been promised to him: in addition to the 10 million dollars he received with the acquisition, Javice almost received a bonus of 20 million dollars.

Chance? When he made the Forbes list, Javice was asked two questions: “What is Frank’s biggest challenge?” and “What’s the worst piece of advice you’ve ever received?” Respectively, the answers were “move the business forward” and “be patient”. Which is logical.

A partner article

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