Charlie Javis, the millennial CEO who sued JPMorgan, is accused of $175 million fraud

Charlie Javis, CTO, Featured Millennial at Forbes” 30 under 30And She was charged on Tuesday after allegedly inflating her startup’s user base before selling it to JPMorgan Chase for $175 million.

Federal prosecutors in Manhattan said Tuesday that Javis, 31, is charged with conspiracy to commit wire and bank wire fraud, wire fraud affecting a financial institution, and bank fraud. Securities and Exchange Commission On Tuesday, Javis was also charged with fraud Regarding the scheme.

She was arrested Monday night in New Jersey and is expected to appear in court on Tuesday afternoon. The rising tech star now faces decades in prison.

Prosecutors allege that the bank acquired Frank Javis’ startup in 2021 after the businessman tricked JPMorgan Chase into thinking the company had upwards of 4 million users. In fact, the startup was once described as “Amazon Higher EducationBacked by billionaire Mark Rowan, it was just under 300,000 customers.

The criminal complaint states that Javis emailed the startup’s engineer after ordering a fake data set just before the sale: “We don’t want to end up with orange clothes.”

U.S. Attorney Damian Williams said in a statement on Tuesday that Javis “engaged in a brazen scheme to defraud GPMC in the context of a $175 million acquisition…[and] She lied directly to JPMC and fabricated data to back up those falsehoods – all in order to make over $45 million from the sale of her company.”

He added, “This arrest should warn entrepreneurs who lie in order to develop their business that their lies will catch up with them, and this office will hold them accountable for putting their greed above the law.”

The charges against Javis come just months after JPMorgan Chase sued the entrepreneur in relation to her startup Frank – also known as Frank Financial Aid – in a move that sent shockwaves through a fintech community still reeling from the downfall of genius Sam Bankman-Fried and Elizabeth. Holmes.

Javis opposed JPMorgan Chase, arguing that the financial institution should cover its legal fees in connection with months of internal investigations.

A spokesperson for her attorney Alex Spiro, who had no further comment, told The Daily Beast that “Charlie denies these allegations.” A JPMorgan Chase spokesman declined to comment.

One factor in the Javis case is that the fraud victim, in this case, is a large bank like JPMorgan, former federal prosecutor Neama Rahmani told The Daily Beast on Tuesday. But he noted that “after Elizabeth Holmes was indicted and convicted, it was clear that the Department of Justice would investigate and prosecute these types of fraud cases.”

“When tech startups make up data and lie outright, it’s hard for even seasoned outsiders to tell the truth,” he added. “Javis is going to have a hard time defending this case because the numbers don’t lie, and if she is convicted her potential sentence will be out because the scale of the fraud was so great.”

As previously reported by The Daily Beast, the startup and Javice were already in hot water prior to JPMorgan Chase’s lawsuit. Since 2017, Javis has faced a lawsuit in Israel after wrongfully firing an employee and cheating him out of millions. It was also forced to change the name of Frank’s website after the Education Department accused the startup of misleading students into believing it He was associated with the government.

The FTC has also considered Javice and Frank for potentially deceiving college-aged students about COVID relief. (It’s not immediately clear if Javis responded to the FTC, and the agency has previously declined to comment.)

According to the criminal complaint unsealed Tuesday, Javis allegedly “engaged in a calculated scheme to falsely and spectacularly inflate the number of clients at her firm, Frank, in order to fraudulently solicit” JPMorgan’s acquisition of it for millions.

Initially, the complaint states that two banks were interested in acquiring Frank in 2021 and the acquisition process has begun. At the time, Javis said Frank had 4.25 million users who provided their personal data after signing up for an account. The complaint states that when JPMorgan attempted to verify Frank’s users, Javis “concocted a data set.”

“To do this, Javis contacted a data scientist and hired him to create an artificial data set,” the plaintiffs say in the complaint. Javice then provided the synthetic data set to an agreed third party vendor in an effort to confirm this [JPMorgan] that the dataset contains more than 4.25 million rows, consistent with Javis’ misrepresentations.”

The lawsuit, filed by the bank, alleges that Javis asked the professor to bill $18,000 for the data set.

Relying on Javice’s data set, the financial institution eventually agreed to buy the startup for $175 million — and hire the 31-year-old and other Frank employees, according to the complaint.

“Javis received more than $21 million for the sale of her stake in Frank and, according to the terms of the transaction, was to pay a further $20 million in retention bonus,” the complaint reads. The SEC investigation also revealed that Javis received $9.7 million directly in stock proceeds and millions more indirectly through trusts.

The complaint also details how Javis and his co-conspirator spent nearly $105,000 purchasing a data set of 4.5 million students in order to “cover up their lies.” However, the new listing didn’t include all of the data fields that Javis had previously marketed to JPMorgan Chase — prompting the entrepreneur to buy another data set on the open market.

JPMorgan executives realized something was wrong with the list of clients, which eventually led to Javice’s termination in November 2022.

Instead of helping students, we allege that Ms. Javis engaged in old-school fraud: She lied about Frank’s success in helping millions of students navigate the college financial aid process by building up data to support her claims, and then used that fake information Grewal, Director of Enforcement The SEC, in a statement on Tuesday, urged JPMC to enter into a $175 million deal.

An early investor in Frank told The Daily Beast of Javice, “I feel bad that a nice guy is in so much trouble now, but it looks like he probably had sex.”

In the world of high-profile startups like Theranos and FTX, they said “there’s a spectrum to the idea of ​​faking it” until you can make it happen.

“There is no doubt that people in startups always play hard, you know, and that playing hard can go far.”