In September of 2021, JPMorgan Chase, the country’s biggest bank, announced that it was buying a startup called Frank. Frank’s business was supposedly built around helping students navigate the financial aid system—and JPMorgan Chase wanted in. So much so that it reportedly paid $175 million for Frank. A press release stated, “Frank offers a unique opportunity for deeper engagement with students. Together we’ll be able to expand our capabilities for students and their families, helping them financially prepare for college and other major moments in their future.”
But, according to JPMorgan, Frank was not all it seemed—nor was Charlie Javice, the woman who started it. In fact, JPMorgan says pretty much the whole thing was a lie. Now the bank is suing Javice, saying it was the victim of fraud.
On Sunday’s episode of What Next: TBD, I spoke with Ron Lieber, author of the Your Money column for the New York Times, about whether the biggest bank in America got taken by a twenty-something startup founder. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: What was Frank trying to do?
Ron Lieber: The big idea at first was to help people who are having trouble filling out the federal financial aid form known as FAFSA, which is notorious for its 100-odd questions and all sorts of financial detail that you need. It creates conflict with divorced parents or absent parents, it creates troublesome conversations between kids and parents. So they were going to help you fill that out and make it easier.
But FAFSA is free. I mean, that’s literally the first word in there: free. So that was their service—pay us and we’ll make this thing less of a headache?
As we know, out there in the world, you can manage your own money, but it might be easier or quicker to hire somebody else to do it for you. At first, Frank was not charging most people for this assistance. They had a premium version at the very beginning. It was never clear to me exactly what it was, but they, like any startup, were throwing a bunch of things at the wall and seeing what sticks. FAFSA wasn’t the only thing that they were trying to help people with.
At the heart of Frank’s sales pitch to investors was Charlie Javice. When she started Frank in 2016, she was just 24. Some of her earlier ventures hadn’t worked out, but when she spoke to audiences or venture capitalists, and later JPMorgan Chase, she sold a compelling narrative. What was that narrative?
Her pitch was, “Financial aid is broken, it’s way too hard, somebody needs to make it easy on low-to-moderate-income kids and families to get access to money that is rightfully theirs. And because I was a financial aid kid myself, I know how painful this is. And with all of the smarts that I acquired through the scholarships I got at fancy, fancy Wharton undergrad, I’m going to fix this for everybody.”
And that story resonated with investors?
It sure did. Five, 10 different angel investors and VC firms lined up and through multiple rounds, the company raised a low-double-digit amount of millions of dollars.
Why do you think JPMorgan Chase was so interested in this company? Because $175 million may be a small amount for them, but it’s still not nothing. Why did they want it?
If you are the biggest bank in America and you are trying to figure out where your next generation of customers is going to come from, when that next generation starts engaging in banking behavior in their teens, quite often they’re using apps on their phone. And a whole bunch of startups over the last five to 10 years have flooded into market with piles of venture capital money trying to create mobile-first banking experiences. So these are mostly not banks themselves—they’re kind of renting a bank charter behind the scenes. They’re offering a very slick and friendly front end that is appealing to digital natives.
JPMorgan has mostly sat that out, and they have realized in the last couple of years that they need to pay way more attention to what’s happening with digital financial services and how teens and people in their 20s are using them, so as to capture those customers or move them over eventually. So Frank, in theory, was millions of satisfied customers who had an affinity for a brand that helped them get money from college and for college. And there was this founder, Charlie Javice, who was out there in public, talking a really good game, who seemed to be really good at what she did. And that’s the kind of young executive that you might want hanging around as a managing director to help you reach that audience that you are having so much trouble reaching at present.
What JPMorgan thought it was buying was a list of somewhere north of 4 million young people, but according to the bank’s lawsuit—and all of this is just alleged right now—Javice had nowhere near that number of customers. In fact, JPMorgan says most of those millions of people were completely made up.
JPMorgan says that the real number was closer to about 300,000 people who had in some way, shape, or form actually engaged with the company or used one of its services. That was the number of real emails and real names that they actually had in their database, according to JPMorgan. Now, let’s remember here that these are all allegations. There has been no reply yet. JPMorgan is saying that all the rest of the emails and other customer data were either made up from whole cloth or purchased from a third party.
How did she do it? Where did these 4 million imaginary people come from?
There are a couple of allegations. The first is that there was an unnamed data scientist who Frank worked with on a consulting basis to help them stuff their database with names and other customer data that would pass muster during the due-diligence process.
The second allegation is that Frank also went out on the open market to third parties that are in the business of selling names and email addresses of actual college students.
Once JPMorgan began investigating, the bank says it found evidence of fraud in Charlie Javice’s emails, including one where she tried to reassure a nervous engineer that no one would end up in “an orange jumpsuit” over what they were doing.
You can go so many different ways with this. One way is, well, she must not have been really doing fraud because anybody who’s doing fraud isn’t going to do it on email. Everybody is going to be wise enough not to do fraud on email. The flip side school of thought is, well, there’s no need to even have a trial here because JPMorgan caught her red-handed. They’ve got the receipts. What is the defense to this? Unless JPMorgan invented all of the emails, but why would JPMorgan get up in public and thoroughly embarrass themselves if they weren’t 100 percent sure that they could prove that what they say happened actually happened?
If you look at basic FAFSA numbers for the 2020–2021 application cycle, it says 17.8 million FAFSAs were submitted. Frank is claiming that they had roughly 4 million customers. That seems like a huge share of the market, like an almost impossible share of the market, right?
Let’s be as generous as possible here. Seventeen million people filling out the FAFSA, 1 million using Frank each year. That’s a pretty high share. Trying to get the attention of 1 million people each year requires billions of impressions using Google AdWords and a whole army of people doing search engine optimization so that people can find their way to your site using content and articles as a sort of lure. This is really, really, really expensive. You do not do it with $12 million in venture capital money.
There’s a section in the lawsuit where JPMorgan says, “In every aspect of her interactions with JPMC, Javice had a choice between revealing the truth about her startup and accepting Frank’s actual value and lying to inflate Frank’s value and reaping the rewards from that inflation. Javice chose each time to lie.” But, come on, it’s JPMorgan Chase. It’s the biggest bank in the country. Where was their due diligence? Aren’t they supposed to check?
I don’t know what the hell happened. Hindsight is always 20/20, though some things were clear. Javice had written this op-ed for the New York Times in 2017 that was chock-full of errors. There was a public spanking from the Federal Trade Commission over some of the services they were offering during the pandemic. There are numbers that didn’t add up. You would’ve thought that that would’ve given JPMorgan some pause.
My question for JPMorgan is: Did you have anybody in that due-diligence room who was on financial aid themselves and knows how it works, and therefore would know what questions to ask? Was there anybody on the senior team whose own children were applying for financial aid or at least attempting to fill out the FAFSA? Because I’m pretty sure that if you had people on the team who had done those things and were empowered to speak up, there might have been more skepticism of the deal.
Big banks hire mostly, but not exclusively, from very expensive private institutions where more than 50 percent of the people who attend them are not on financial aid and have never been close to wanting for anything. And the possibility is that the people who are finance and econ majors themselves come from affluent families where the parents work in finance or related industries.
If that’s how you recruit and your due-diligence team just so happens to be made up of people who were never on financial aid themselves, then there is a high likelihood that you will be walking in the door not knowing anything about how the financial aid system works. And if you try to give yourself sort of a crash course in it as a 28-year-old or as a 48-year-old, you’re not going to learn it the same way as you would if you were 17 trying to work this out with your single parent, if you were first gen, if your parents were undocumented. Without people like that on the team, maybe the questions that you ask are not as incisive.
One thing Charlie Javice was not wrong about is that the FAFSA process, and frankly the entire student aid process, is incredibly complicated. Why is it so confusing?
All sorts of well-meaning government bureaucrats, over the course of many decades, kept adding checks and balances and questions to the form that is the gateway for federal financial aid, so that nobody would take advantage of the system and get something that they did not “deserve.” But the end result, after 50 years of this, is a form so complicated that it is intimidating even to people who are reasonably financially sophisticated.
It feels extremely American that we are having a conversation about a failed startup built on the back of the federal financial aid process instead of, Oh, well, here are some streamlined reforms to the federal financial aid process.
We’re always sort of picking away at the bad result that falls out of the complexity that’s been built in, layer on layer, over time so that only the “deserving” get what they’re supposed to and the undeserving are barred. In other countries, there’s just an understanding upfront that education, retirement, health care, those are all public goods, and we will pay 6 or 8 percentage points more in income taxes each year and then there won’t be any bureaucracy. Stuff will just happen. People will get things. And we won’t be having podcasts to talk about people who tried to raise a bunch of money to cut through the red tape and then ended up maybe not telling the truth about what they were doing.
Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.