JP Morgan's Mulligan-Charlie Javice May Have Lied, but the Bank is the One Who Looks Foolish- JP Morgan

JP Morgan’s Mulligan: Charlie Javice May Have Lied, but the Bank is the One Who Looks Foolish

Charlie Javice, entrepreneur and former financial wunderkind, is currently being sued by JP Morgan for allegedly misleading the company about the scope of its investment in her online college financial aid platform, Frank. JP Morgan alleges that Javice claimed to have 4.25 million users, when in reality she had less than 300,000.

Background: Who is Charlie Javice and What is Frank?

Charlie Javice is a graduate of the Wharton School of Business and was considered an up-and-coming entrepreneur. She was even named one of Forbes 30 Under 30 in 2019.

In 2016, she founded the startup Frank, an online platform designed to make the application process for federal student college loans (FAFSA) easier. Five years later, Javice approached JP Morgan to buy her startup, and the company made a deal to acquire it for $175 million.

Today’s Lawsuit: JP Morgan vs. Charlie Javice

Today, JP Morgan is suing Javice for lying about how many users used the platform at the time of purchase. They allege that she hired a data scientist to fabricate millions of fake accounts to fool JP Morgan representatives.

For her part, Javice claims that JP Morgan simply does not want to pay the money it owes her, and for this reason is making up spurious claims against her.

How was JP Morgan Duped (Allegedly)?

When a global powerhouse like JP Morgan is approached by an entrepreneur to buy their company, one would think there are certain protocols and due diligence the company must follow before receiving the green light to make the acquisition.

How then, could a team of seasoned financial experts be duped by an entrepreneur under the age of 30? 

  1. Gross Negligence

First of all, someone or several persons, made a mistake. A hole in the due diligence process simply missed the most basic step — verification of the founder’s claims.

For example, in 2018 Javice claimed that Frank helped students secure an average of $28,000, which is more than twice the average aid college students received in 2015-2016. A basic fact check would uncover the figure was not accurate. There were also claims of helping more so many U.S. university applicants in the short time since Frank had been founded, that it would have accounted for 90% of market share, a holy grail metric for any company.

Additionally, a check of the site’s users could discern fake accounts from real ones.

JP Morgan also neglected to consider Javice’s previous behavior and business troubles. In 2017, she was sent a “cease and desist” letter by the Department of Education for using the FAFSA trademark on her Frank website. She settled with them in 2018.

Prior to Frank, Javice founded several startups that did not make it due to various reasons. Tapd, which she co-founded with Israeli entrepreneur Adi Omesy, was supposed to build an alternative credit score for college students. It failed when they learned they would need regulatory approval to operate as a credit bureau. Omesy sued Frank in Israeli court for unpaid wages and for not giving him 10% of company equity (and won).

Basic due diligence would have uncovered an uncomfortable history of a founder who jumped into endeavors before actually understanding the nuts and bolts required to make them work.

2.              Glowing Self-Promotion

In addition to gross negligence, it’s possible that JP Morgan got blindsided by the sweeping narrative that Javice spun. While many of her startups failed, she was great at putting a positive spin on things and casting herself in the light of female-entrepreneur-savior who seeks to make a difference in the world, a-la Elizabeth Holmes of Theranos fame.

Again, even if Javice said that she would spin gold from straw and would then donate it to the poor, JP Morgan should have done its due diligence in verifying her claims and checking into her history to make sure she was a trustworthy person.

This is Why We Perform Due Diligence

Companies who think due diligence is an extra, unnecessary step in any business transaction need only to look at JP Morgan and understand — if this financial giant could be duped by enthusiasm and fudged numbers, why should they be any different?

Interfor always advises its clients to conduct multi-faceted due diligence before entering any transaction, sooner than later in the deal process. We also assist with post-fraud investigations for those who wait too long. For example, Javice is claiming that JP Morgan dreamed up its lawsuit because it does not want to pay her — the company now needs to provide evidence of intentional fraud. That’s where investigators like us come in.

Some people have the best intentions and get in over their heads before they know it. Others intentionally set out to dupe others. Either way, when you have knowledge on your side, you know that you are protected both before and after any business transaction.