4/5/2023: Founder of Frank is Criminally Charged with Fraud by DOJ
Startup investors' worst nightmare
The Justice Department on Tuesday criminally charged Charlie Javice, founder of student loan application platform Frank, with defrauding JP Morgan Chase. She was accused of “falsely and dramatically” inflating the number of customers during the due diligence process of the $175M acquisition of Frank by JPM. She duped the bank into believing Frank had more than 4M customers. In reality, the startup had fewer than 300K. She allegedly paid a data science professor $18K to fabricate the customer list and paid ASL Marketing another $105k for a dataset of 4.5m students. The criminal charges include conspiracy, wire fraud affecting a financial institution and bank fraud, each of which carries a maximum sentence of 30 years in prison if Javice is convicted. She was also charged with securities fraud, which has a 20-year maximum.
WOW! This is terrifying. By all means people can blame investors’ poor due diligence work. But the reality is the founder can usually get away with it if (s)he goes out of their way to deceive. In this case, she was arguing that she couldn’t just hand over the customer datasets due to privacy and competitive reasons. I believe she gave them some kind of anonymized datasets so it’s hard to verify the veracity of the customer records. Plus, the acquisition occurred in the go-go year of 2021. People had so much optimism in tech that they looked at everything tech with rose-colored glasses. Charlie Javice apparently is also an ambitious and charming young woman with big ambitions and a very nice pedigree. People trusted her. I can’t say with confidence that I would say no to her if she pitched me. But I am in the business of trusting and believing in founders. Do I stop trusting and believing in founders because people like Charlie Javice exist? Nope. But stories like this do hurt and I hope justice will prevail.