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You’d think that a financial institution with as much clout as JPMorgan would do plenty of research before agreeing to acquire a startup company. When the bank purchased a startup company that claimed to help millions of student loan borrowers make sense of the process, however, executives say they were taken for a ride.
The truth about Frank
According to JPMorgan’s complaint, the startup firm in question — Frank — misrepresented the number of users it had attracted to its platform. After raising about $5 million in early 2020, Frank made its case to the financial services giant, which agreed to acquire the startup for an undisclosed amount the following year.
Now, JPMorgan is suffering from something a bit more acute than buyer’s remorse.
Subsequent reports indicate that the bank paid $175 million for Frank and a lawsuit filed last month claims that the startup’s CEO Charlie Javice exponentially overstated its user base.
Instead of the more than 4 million users Javice claimed, the platform really had somewhere around 300,000, JPMorgan said.
Details of a scam
Although the case remains under review, JPMorgan’s lawsuit lays out a pretty compelling case against Javice and his company. Here’s how the complaint claims that Frank managed to pull the wool over a multinational corporation’s eyes:
- Frank initially produced a list of 4.265 million users who started the loan application process.
- JPMorgan wanted more information about the users, but Frank cited privacy concerns to avoid providing it.
- Javice allegedly paid a professor $18,000 to create a forged list after a Frank engineer refused to lie.
- The doctored data allegedly came from a list of 4.5 million students that another Frank executive bought for $105,000.
Now JPMorgan wants its $175 million investment back.
