The startup that fooled JP Morgan – Economy

The startup that fooled JP Morgan - Economy

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

  • “The Biggest Bank in America”

  • ‘It has the largest investment bank in the world’

  • Generates nearly 4 billion (or trillions) of dollars in assets”

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

This information is behind the entire reputation of the American financial conglomerate and makes it a cornerstone of the entire global financial system. That being said, given its importance, it’s hard to imagine anyone being able to trick this organization into any type of business, be it a corporate, an investor, or an individual user.

But that’s what “allegedly” happened with Charlie Javice and his startup, Frank. Founded in 2016, the company positioned itself as a solution for the millions of American students who each year go through a complex loan application from banks and other financial institutions to find a way to pay for their college – and here’s where The software from Frank is added, which simplified this whole process. At the same time, the company wanted to be “an Amazon for higher education,” attacking a $1.5 billion U.S. market (trillion) of dollars (2023).

turns out that the pitch was enough for Javice to pique the interest of several VCs such as Mark Rowan (of Apollo Global Management) and because in September 2021, JP Morgan Chase decides to take over the company for $ 175 million. With the purchase, the bank’s goal was to place Charlie Javice and the rest staff from Frank who was responsible for their dedicated student section so they could sell their platform along with other JP Morgan services. On paper it all seemed logical because:

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

  • According to the CEO, Frank had already registered the processes of more than 5 million attending students at more than 6,000 universities.

But that turned out not to be the case…

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

Serious allegations that, for Javice’s sins, seem to have enough evidence to back them up.

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

  • Charlie Javice’s erratic behavior began during the due diligence process, when JP Morgan asked him to hand over Frank’s user list. The founder initially cited protecting their privacy as a reason not to do this.

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

  • Charlie Javice used several schemes to introduce a user base he didn’t have: 1) he asked a top engineer at Frank to make the list; 2) paid $18,000 to a New York college professor to create a list of 4 million users based on how many users he already had with name, address, date of birth, and other details; 3) asked its Chief of Growth, Oliver Amar, to buy 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 this, Frank had already been the target of criticism from the US Congress and the FTC (US Competition Authority), for the malfunctioning of his platform and for a business model that seemed to be based more on selling users’ data to advertisers.

It’s a case to be honest

In response to JP Morgan’s accusation, Charlie Javice decided to counterattack and also take the bank to court. According to the businesswoman, all this is no more than a plan to justify and conceal a termination 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 someone elseis also a way for JP Morgan to escape the millionaire’s compensation he was promised: in addition to the $ 10 million he received in the acquisition, Javice was about to receive a $ 20 million bonus.

Coincidence? When he made the Forbes list, Javice was asked two questions: “What is Frank’s biggest challenge?” and “What’s the worst advice you’ve ever received?” The answers were “scale the business” and “be patient” respectively. Which makes sense.

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