2013 Wharton graduate and Frank startup founder Charlie Javice was arrested on April 3 after being sued by JPMorgan for fraud.
On Tuesday, The Department of Justice charged Javice with fraud in connection to the acquisition of Frank by JPMorgan. The Securities and Exchange Commission also filed a civil complaint against Javice.
Javice was arrested on four charges: bank fraud, securities fraud, wire fraud, and conspiracy to commit bank and wire fraud. She appeared before a magistrate judge on Tuesday, according to the U.S. Attorney’s Office for the Southern District of New York.
Javice was released on a $2 million bond on April 4 and has since agreed to a curfew and possible electronic monitoring, according to CBS News.
In 2016, Javice founded Frank, a startup designed to make higher education more affordable, drawing inspiration from Javice’s personal struggles with financial aid at Penn. She was recognized for her accomplishments in the 2019 Forbes 30 under 30 list and was appointed managing director at JPMorgan after the bank acquired Frank in 2021.
Javice allegedly lied about Frank’s user numbers to inflate the company’s purchase price, prompting JPMorgan to file the lawsuit. According to the U.S. Department of Justice, Javice and co-conspirator Olivier Amar attempted to have Frank’s director of engineering create an artificially generated data set that would boost the startup’s user numbers.
Prosecutors say that Javice claimed the company had 4.25 million users when, in reality, it had less than 300,000 users, approximately 7% of the purported number. This inflation allowed her to significantly overvalue her company, which JPMorgan purchased for $175 million in September 2021.
JPMorgan became aware of the alleged fraud when a test marketing campaign to Frank’s supposed customers had unexpectedly few responses. After the bank sued Javice, she filed a separate lawsuit against JPMorgan, alleging they were aware of the number of Frank users throughout the deal.
Gurbir Grewal, director of the enforcement division of the SEC, referred to Javice’s activities as “old school fraud.”
“Even non-public, early-stage companies must be truthful in their representations, and when they fall short we will hold them accountable as in this case,” Grewal said.
Since the publicity of its legal issues, Frank’s website has been deactivated.