How a startup CEO was accused of $175M fraud while denying she made up her success

When JPMorgan Chase announced two years ago that it would purchase Frank, a startup college financial planning company for students, the global banking giant said that by acquiring the apparently popular platform for $175 million it hoped to strengthen its relationship with millions of young people.

But JPMorgan and federal authorities now believe there was a big problem: Many of the millions of students said to be using Frank never existed.

The Department of Justice filed criminal fraud charges, which were unsealed Tuesday, against Javice, Frank's founder and former CEO, alleging she "engaged in a brazen scheme" when she sold her company to JPMorgan Chase in 2021.

The Securities and Exchange Commission separately announced its own fraud complaint against Javice on Tuesday, seeking a variety of punishments including civil penalties and a ban on her being a corporate officer.

Both federal prosecutors and the SEC accused Javice of defrauding JPMorgan into believing Frank had 4.25 million users, when in reality the number was less than 300,000.

According to federal authorities, the 31-year-old Javice allegedly fabricated and manipulated Frank's data to make it appear as though her company serviced far more customers than it actually did. As a result of her suspected deceit, she stood to make more than $45 million, prosecutors said Tuesday.

Javice faces charges of bank fraud, securities fraud, wire fraud affecting a financial institution and conspiracy to commit bank and wire fraud.

Following her arrest Monday night, she appeared in court on Tuesday and was released on $2 million bond and subjected to travel restrictions.

"This arrest should warn entrepreneurs who lie to advance their businesses that their lies will catch up to them," U.S. Attorney Damian Williams said in a statement.

Javice has denied the allegations through a spokesperson. Her lawyer Alex Spiro declined to comment to ABC News for this story but maintained before Javice's arrest that she was being targeted by JPMorgan and had internally voiced concerns about student privacy laws.(A JPMorgan spokesperson declined to respond to this assertion but pointed to their own accusations of fraud against Javice.)

A deal unravels

Javice founded Frank in 2017 as a platform designed to simplify the student loan application process, Frank and JPMorgan said in announcing the acquisition. The company helped rocket Javice to national prominence with a glowing feature in Forbes and a spot on the magazine's coveted "30 Under 30" list honoring young professionals in finance.

JPMorgan hired Javice as a managing director for Frank as part of its acquisition in 2021 but has said in court that its suspicions were raised when numerous purported Frank user emails subsequently appeared unreachable.

Javice was fired last November, according to court documents.

Before her arrest, she and JPMorgan filed dueling lawsuits in December, with the bank claiming fraud and Javice claiming wrongful termination and that she was owed attorneys' fees after being targeted by the bank. She denied in court filings in February that she ever fabricated or misrepresented user data and merely told JPMorgan that her platform "had engaged with at least 4.25 million students."

"Ms. Javice's vision was that Frank would be the place for college-bound students and their families to turn to for all their money needs … the knowledge and resources that students would access at Frank would empower them for decades as they obtained financial aid packages, built personal wealth and managed debt," Javice's attorneys wrote in a December court filing.

Spiro, her attorney, said in his previous statement that "[JPMorgan] knows what they filed is retaliatory and misleading. They were provided all the data upfront for the purchase of Frank and Charlie Javice highlighted the restrictions placed by student privacy laws during due diligence."

Her attorneys have also called the bank's investigations into Frank's data part of an unfounded attempt to deny her compensation while indicating that any business issues with Frank weren't of Javice's making.

"JMPC's acquisition of Frank did not go as planned," Javice's lawyers wrote in February. "But this was no fault of Ms. Javice's."

Accused of plotting to deceive

The dispute over users and data centers on Frank's signature tool, "Easy FAFSA," which Frank said was designed to streamline and simplify the Department of Education's Free Application for Federal Student Aid. After launching its FAFSA tool, Frank's website later grew to include free articles on education and financial literacy.

"This content increasingly attracted users to visit the website to use these resources, even if they did not then fill out the Easy FAFSA® application," Javice's lawyers wrote in February.

However, lawyers with JPMorgan contend that when Javice provided a spreadsheet with a column titled "FAFSA in Process" it indicated that more than 4.25 million students had opened accounts with Frank and provided detailed personal information to support that.

Federal authorities think the fraud went beyond a mislabeled spreadsheet column and that Javice tried to get her director of engineering to fabricate a data set. Javice then went to an outside data scientist to generate the fake data, according to allegations in prosecutors' criminal complaint against her.

Bank alludes to 'mistakes'

JPMorgan Chairman and CEO Jamie Dimon was asked about the Frank deal in an interview earlier this year. While declining to discuss the case specifically, Dimon suggested the acquisition was a "mistake."

"There's always lessons," he told CNBC. "We always will make mistakes. I tell our people, if we make mistakes, it's OK. But I don't want our people to be afraid of making mistakes."

Prosecutors now must produce an indictment to move the criminal case forward, former federal prosecutor Indira Cameron-Banks told ABC News.

"It could be that there's more investigation or that there was some concern about some evidence or something," Cameron-Banks said. "We don't know, and I expect that we'll find out more over the coming month or so."

The clock is ticking down on the government to present its findings to a grand jury, which is no small task given the complexity of the case, she said.

JPMorgan spokesperson Pablo Rodriguez said in a statement that "our legal claims against Ms. Javice … are set out in our complaint, along with the key facts. This dispute will be resolved through the legal process."

Rodriguez declined to answer specific questions about JPMorgan's corporate acquisition vetting processes and how those processes may have changed since the Frank purchase.