Charlie Javice, the founder of the now defunct financial aid startup Frank, has been sentenced to seven years in federal prison. She was found guilty of defrauding JPMorgan Chase. This ruling represents a major breakthrough in the case. It shines a spotlight on the failures of due diligence at systemically important financial institutions.
Javice, who quickly became one of the biggest stars in the fintech ecosystem, was named to Forbes’ 30 Under 30 list for her trailblazing work. There were instances, including her conviction of duping JPMorgan Chase about Frank during the sale. In 2021, the bank bought the upstart for $175 million. This decision had been driven by Frank’s assertions that he had a customer base of about 4 million. Upon investigation, they found out that the true number of users was much less—only approximately 300,000 active users.
The fraud allegations stemmed from Javice’s request for assistance in creating fake user data to bolster her claims about the company’s customer base. When Patrick Vovor, an engineer who previously worked at Frank, balked at producing fake data, Javice went in a different direction. She turned to Adam Kapelner, a math professor and data scientist, for assistance. Kapelner then assisted her in generating synthetic data that understated the size of Frank’s operations.
Beyond her prison sentence, Javice is on the hook for millions of dollars. Her co-defendant, Olivier Amar—Frank’s chief growth officer—was similarly ordered jointly and severally liable to pay back $278.5 million in restitution. This monetary judgment underscores the egregiousness of their conduct. It’s a reminder of the outsized effects on a company like JPMorgan Chase, which claimed that Javice lied throughout the purchase process.
During the trial, testimonies revealed some incisive details about Frank’s inner workings. In order to sell this house of cards, the founders took every possible measure to make their company appear like a massive success. Here, Vovor’s evidence proved to be the key to shedding light on the scope of the fraudulent scheme perpetrated by Javice and Amar.
This case sheds light on the vital need for an ethical code of conduct regarding startup valuations. It raises larger issues about corporate governance and accountability in high-stakes mergers and acquisitions. JPMorgan Chase’s total failure in due diligence has raised a few eyebrows. They placed excessive trust in the information results provided by Javice and her team, omitting critical verification processes.
