Charlie Javice, former CEO of the educational technology startup Frank, was sentenced to 85 months in prison after being found guilty of defrauding J.P. Morgan Chase (JPMC) to the tune of $175 million. In a masterminded scheme of falsifying customer data, Javice dramatically inflated user numbers to push through Frank's sale to the financial giant, as confirmed by the U.S. Attorney's Office for the Southern District of New York.
The betrayal of trust went deep, reaching the level of fabricating an entire data set to mislead JPMC about the health and reach of Frank, an online platform aimed to ease the Free Application for Federal Student Aid (FAFSA) process for students. Javice, along with co-defendant Olivier Amar, who served as Frank's Chief Growth Officer, faced charges of conspiracy, wire fraud, bank fraud, and securities fraud, "today's sentence sends a clear message that brazen frauds will be met with serious penalties," were the words of Acting Attorney for the United States Amanda Houle, after the verdict was delivered by U.S. District Judge Alvin K. Hellerstein, as per the U.S. Attorney's Office.
The deceit unfolded as Javice began the process of negotiating the sale of Frank to interested buyers, which included major banks like JPMC, with claims that the company had over 4.25 million users. As the banks moved forward with due diligence, the charade entailed hiring an external data scientist to concoct over 4.25 million rows of synthetic data. This was after an internal employee raised legal concerns and refused to participate. The faked dataset was then provided to a third-party vendor, who bolstered the false claim to JPMC, as detailed in the prosecution's filings.
A crucial part of the acquisition revolved around the belief that Frank possessed a substantial user base for JPMC to leverage, when, in reality the number was closer to just 300,000 individuals. Despite knowing this, Javice facilitated the purchase of additional real market data in an attempt to cover up the misrepresentation, and subsequently sold this data set to JPMC as if it were bona fide company data. For her part in the fraud, Javice received over $21 million from selling her equity in Frank, and was poised to receive another $20 million as a retention bonus, per the acquisition agreement.
Ultimately, the outcome of the trial accounts not only for the prison term but also for substantial monetary penalties. Javice is ordered to pay over $300 million in forfeiture and restitution, jointly with Amar. The meticulous efforts of the U.S. Attorney’s Office for the Southern District of New York and Federal Deposit Insurance Corporation's Office of Inspector General were commended by Ms. Houle for their part in uncovering the fraudulent scheme, with Assistant U.S. Attorneys Nicholas W. Chiuchiolo, Micah F. Fergenson, and Georgia V. Kostopoulos leading the prosecution.
