Adam Gray/Bloomberg
JPMorgan Chase Fraud Case: Charlie Javice Sentenced to 85 Months
Charlie Javice, the founder of a student-finance startup called Frank, has been sentenced to 85 months in prison for defrauding JPMorgan Chase & Co. during the bank’s $175 million acquisition of her company. The sentence was handed down by US District Judge Alvin Hellerstein in a Manhattan federal court on Monday.
The prosecutors had initially sought a 12-year sentence for Javice. However, the judge seemed to consider character testimonials that painted Javice as generally a good person who had made a grave mistake. “You’re a good person,” Hellerstein told Javice. “You’ve done a bad thing, and I have to punish you.” In addition to the prison sentence, Javice was also ordered to forfeit $22.4 million.
The Conviction
In March, a New York jury found Javice guilty of lying and faking user data to mislead JPMorgan into believing that her site had over 4.25 million users. The actual user count was less than 300,000. At her sentencing, Javice expressed deep remorse for her actions, saying, “I am deeply sorry, and I am asking with all my heart for forgiveness.”
The prosecution described her actions as a “brazen fraud,” asserting that she had inflated the value of her company to secure a higher acquisition price from JPMorgan. Her lawyers, however, argued that her actions were a single lapse in judgment and that the losses incurred by JPMorgan were inconsequential given the bank’s size.
JPMorgan declined to comment on the sentence but has separately sued Javice over the Frank deal.
Elite Founders and Fraud
Javice, a University of Pennsylvania Wharton School graduate, is among a number of young startup founders with elite backgrounds who have recently been convicted of fraud. This group includes FTX’s Sam Bankman-Fried and Theranos Inc.’s Elizabeth Holmes.
Javice’s company, Frank, offered a tool to help students fill out their Free Application for Federal Student Aid (Fafsa). However, JPMorgan shut down the company in early 2023 after discovering the discrepancy in user numbers.
Synthetic Users and Flawed Due Diligence
Javice had paid a data scientist $18,000 to create ‘synthetic’ user data to present to JPMorgan during the acquisition negotiations. This deception came to light when an email marketing push to Frank users resulted in just 10 new checking accounts.
During the trial, Javice’s defense team argued that JPMorgan’s flawed and rushed due diligence should be taken into account. They suggested that the bank was more interested in buying the company before another bank could, rather than verifying the user numbers.
Judge Dismisses JPMorgan’s Role
Judge Hellerstein, however, dismissed these arguments. “A fraud is a fraud, whether you outsmart someone who’s smart or someone who’s a fool,” he said, emphasizing his focus on Javice’s conduct rather than JPMorgan’s alleged negligence.
Javice was convicted alongside Frank’s former chief growth officer, Olivier Amar, who is due to be sentenced next month. Javice’s lawyers have indicated that they plan to appeal the conviction.
Source: American Banker
