Let me present a simple scenario: You run a major US bank with a $400 billion dollar market cap. You want to reach college students who are prime future bank account holders. Good news! You found a company, whose entire purpose is to make the student loan process a lot easier, that boasts more than 4 million users, as in 4 million registered emails. That means 4 million opportunities for new bank customers. You hire a third party consultant to help with due diligence and ultimately acquire said company for… $175 million.
Hooray! What a perfectly symmetrical and mutually-beneficial deal! Now it's time to reach out to those 4 million students and begin to introduce them to all the amazing services offered by your bank.
You fire up an introduction email and target to your entire list of 4 million registered users. You hit send. Now you just need to sit back and count the profits from all the new bank accounts you're about to create.
There's just one little itty bitty problem:
75% of the emails instantly bounce back, undelivered.
As crazy as this scenario sounds, it's exactly what allegedly just happened JPMorgan Chase (JPM) and a company it acquired in 2021 or $175 million called "Frank" So you might call this the case of Bank Vs. Frank.
What (Or Who) Is Frank?
Frank was a fintech company that specialized in helping with the student loan application process for college students. Not a bad idea in theory as it's pretty bad in its natural state.
It was founded in 2016 by Charlie Javice, a 30 year old entrepreneur who has been featured in multiple publications, including Forbes' "30 Under 30." Fun fact: Did you know you have to nominate YOURSELF to be included in Forbes 30 Under 30? It's true. Kind of makes you think differently about it. Also, the fact that a not-so-small amount of Forbes 30 Under 30 people end of becoming headlines for all the wrong reasons…
They should just start preemptively arresting anyone on the Forbes 30 Under 30. pic.twitter.com/jJAN6RkC06
— Chris Bakke (@ChrisJBakke) January 12, 2023
Why JPMorgan Wanted Frank
In this increasingly competitive world, JPM has gone on a buying spree to make sure they stay ahead of the competition.
For what it's worth, I use them for my personal banking, and they've taken care of my entire $135 very well.
When it comes to Frank, it was the perfect company to purchase: a close relationship with millions (4.2 million) of college students who had provided their email addresses, phone numbers, and names in the process.
Basically, it was a marketing play for JPM. When people are in college, they're at a very impressionable age.
What bank do you choose? Probably the one you see first.
So JPM wanted to be at the forefront of Frank's users' minds when it came time to open an account.
So Why Are They Suing Charlie Javice?
And herein lies the drama.
JPM is alleging that Ms. Javice fraudulently sold them a company with mostly fake accounts.
As alluded to at the start of this article, when the JPM team finally tried to reach these 4 million Frank users, more than 70% of the emails bounced. Not from a technical error. According to JPM, those email addresses simply did not exist.
The Lawsuit Claims
Before I share what the lawsuit actually says, I need to say on a personal note whomever JPM hired to do the diligence on this acquisition should be fired immediately.
Why JPM wanted Frank, from my perspective, was very straightforward: to reach 4 million potential customers via email.
Before spending $175 million on an acquisition, literally the only thing you need to do is verify that the email list is real.
Here are some interesting, if not unbelievable, parts of JPM's lawsuit against Ms. Javice.
First, JPM was clearly shocked by the initial response. This is from their legal team:
"JPMC reached out via email to a random sample of the list Frank provided – approximately 400,000 purported customers of Frank – with offers to open Chase checking or savings accounts. Of those 400,000, only 103 even clicked through to Frank's website."
At Celebrity Net Worth, we know enough about website traffic to know that 103 clicks out of 400,000 email addresses is beyond abysmal. In fact, if you have a pulse, you can infer that is abysmal.
But, there's always another side. Ms. Javice and her legal team responded with:
"Chase undermined Frank's value by pursuing poorly conceived business plans focused on monetizing student FAFSA® data and conducting direct marketing campaigns aimed at Frank's historical customers. The proposed business plans disregarded the regulatory environment in which the financial aid platform operated, failed to capitalize on Ms. Javice's past successes, and discounted the very skills for which JPMorgan Bank hired her. More specifically, the new team focused primarily on mining the personal information of Frank's legacy customers to blast them with marketing emails promoting consumer financial products, including credit cards and personal loans."
Basically, they're saying that Chase (JPM) treated the Frank customer base as merely marketing opportunities for their own products, and they should expect no real response from them as potential customers.
It's a reasonable counter and, in fairness, it does happen all the time: one company purchases another, runs it into the ground by not understanding it, and then claims fraud.
But JPM started to dig and checked the email records of Ms. Javice.
What they allegedly found, if true, was quite shocking.
The Allegations
According to the lawsuit, Ms. Javice and Frank's Chief Growth Officer, Olivier Amar, had a Zoom call with the Director of Engineering.
The purpose was allegedly to have the engineer create a fake list of Frank users. JPMorgan alleges that Frank's real customer account was about 300,000 at the time.
The engineer refused to do the job because, well, he probably didn't want to go to jail. The lawsuit even says:
"The Director of Engineering questioned whether creating and using such a data set was legal, but Javice tried to assure the engineer by claiming that this was perfectly acceptable in an investment situation and she did not believe that anyone would end up in an "orange jumpsuit" over this project."
Next, the lawsuit claims that Ms. Javice hired a New York data science professor. Ms. Javice then allegedly provided the data scientist with a list of 293,000 real customers who had submitted their financial application through Frank. His job was to use the information from these customer accounts to essentially invent another 4 million (ish) users that would then be sold to JPM in the acquisition.
From the lawsuit:
"Javice was particularly concerned with the email addresses, asking the Data Science Professor "will the fake emails look real with an eye check or better to use unique ID?" He responded "[t]hey will look fake," at which point Javice agreed to use a "unique ID" instead."
Ultimately, with the service of this data scientist and a third party vendor called Enformion, a list of 4 million accounts was allegedly created.
The numbers in the lawsuit claim Ms. Javice spent about $175,000.
She sold the company for $175 million.
A 99,900% return on your investment is really good.
What Happens Next?
Well, they enter a very long legal battle.
Did Ms. Javice actually fabricate a list of 4 million users and expect to get away with it?
Or did JPM completely blunder this acquisition?
