JPMorgan Chase Bank (US:JPM) on Wednesday this week filed a lawsuit against Charlie Javice, the founder of student finance startup Frank, a trustee, and another individual, accusing them of committing fraud to induce the bank to purchase the company for $175 million.
According to the bank, the defendants lied about the company’s success, size, and market penetration and presented false information about the number of users Frank had. In June 2022, the bank investigated the company and the merger. The investigation revealed the fraud. The bank now has all the emails showing the fraud as the defendants used Frank’s email accounts to create the fake customer list, and the email accounts now belong to the bank following the merger.
Based on the investigation, the bank placed the defendants on administrative leave and, after further investigation, terminated them for cause. As a result of the defendants’ actions, the bank said it lost the $175 million it paid for Frank. The bank is now seeking compensation through rescission, restitution, or damages to be determined at trial. The bank is also seeking court orders that would declare the defendants guilty of fraud, conspiracy, and unjust enrichment, as well as compensatory and punitive damages, interest, attorney’s fees, and costs.
Additionally, the bank said Javice created nearly four million fake customer accounts to inflate the number of customers Frank had, using a data scientist to invent the accounts. Javice approached the bank in mid-2021 about a potential sale and lied about Frank’s success, size and market penetration to induce the bank to purchase Frank for $175 million, the suit claimed.
Javice was asked to confirm Frank’s customer base during the due diligence, but the bank said she used the opportunity to present false information instead. Javice used Frank’s email accounts to create the fake customer list, and the bank has these email accounts following the merger.
The bank said it ultimately discovered the truth after sending out marketing emails to a batch of 400,000 Frank customers, and about 70% of the emails bounced back.
This article originally appeared on Fintel
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