JPMorgan Chase shuts down student financial aid website Frank

Dimon said in June that he was preparing the bank for an economic “storm” caused by the Federal Reserve and Russia’s war in Ukraine.

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JPMorgan Chase close thursday Website It bought a college financial aid platform for $175 million after it was alleged that the company’s founder created nearly 4 million fake customer accounts.

The nation’s largest bank acquired Frank in September 2021 to help deepen ties with college students, a key demographic. a Chase executive told CNBC at the time,

JP Morgan called the deal “fastest growing “college financial planning platform” is used by over five million students across 6,000 institutions. It also gave the startup’s founder access to charlie jeviswho joined the New York-based bank as part of the acquisition.

Months after the transaction closed, JPMorgan said it learned the truth after sending a batch of marketing emails to 400,000 franc customers. Nearly 70% of emails bounced back, the bank said in a lawsuit filed last month in federal court.

Joyce, which approached JPMorgan in mid-2021 about a possible sale, lied to the bank about the scale of its startup, the bank alleged. Specifically, according to JP Morgan, Javis used a data scientist to invent millions of fake accounts after being pressed to verify Frank’s client base during the due diligence process.

“To cash in, Javis decided to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration, in order to get JPMC to buy Frank for $175 million. be motivated,” the bank said. “Javis represented in documents held in the Acquisition Data Room, in pitch materials, and through oral presentations [that] More than 4.25 million students created Frank accounts to begin applying for federal student aid using Frank’s application tools.”

Instead of acquiring a business with 4.25 million students, JPMorgan had “less than 300,000 customers,” JPMorgan said in the suit.

defending jevis

An attorney for Javis told the Wall Street Journal that JPMorgan made up “manufactured” reasons for firing him late last year to avoid paying him millions of dollars. Javis has sued JPMorgan, saying the bank should have put forward the legal bills it incurred during its internal investigation.

Attorney Alex Spiro said, “After JPM acquired Charlie’s Rocketship business, JPM realized they couldn’t work around existing student privacy laws, committed misconduct, and then tried to renegotiate the deal. ” told the journal, “Charlie blew the whistle and then sued.”

Spiro, a partner at Quinn Emanuel, did not immediately return calls from CNBC.

JP Morgan spokesman Pablo Rodriguez had this response:

“Our legal claims against Ms. Javis and Mr. Amar are set out in conjunction with the key facts in our complaint,” he said. “Ms. Javis was not and is not a whistleblower. Any dispute will be resolved through the legal process.”

‘pinch me’

JPMorgan said in its lawsuit that the alleged fraud by Joyce and one of its executives “materially damaged JPMC in an amount to be proven at trial, but not less than $175 million.”

Regardless of the outcome of this legal quandary, this is an embarrassing episode for JPMorgan and its CEO. Jamie Dimon. In an effort to fend off encroaching competitors, JPMorgan created a The buying spree of fintech companies in recent yearsAnd Dimon has repeatedly defended its technology investments as essential ones that will deliver good returns.

the fact that a young founder in an industry known for volatile metrics And a “fake it ’til you make it” ethos managed to trick JPMorgan calls into question just how rigorous the bank’s due diligence process is.

In an interview at the time of the deal, Javis marveled at how far she had come in just a few years leading her startup.

“Today is my first day employed by someone else,” Javis told CNBC. “I mean it’s still very much like, make me twitch, did that really happen?”

As a result of the legal tussle, JP Morgan laid off Frank on Thursday morning.

“Frank is no longer available” the website now reads. “To file your Free Application for Federal Student Aid (FAFSA), visit StudentAid.gov.”

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