Money Rehab with Nicole Lapin - How Charlie Javice's Company Frank Fooled JP Morgan

Episode Date: February 17, 2023

This is the story of Charlie Jarvice, founder of Frank, the a student-aid platform designed to help students apply for federal student aid. Charlie sold her company to JP Morgan for $175 million. But the sale was predicated on a big lie. Nicole unpacks the twisted story, what it means for your data, and how student aid applicants can find (legit) resources. FAFSA Resources: https://studentaid.gov/apply-for-aid/fafsa/filling-out https://studentaid.gov/es/apply-for-aid/fafsa/filling-out https://www.youtube.com/watch?v=9apxxQrx-WY

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to It's time for some money rehab. What are some things you hate? Does filling out forms and spam emails make the list? What about things you like? Does stories about scammers make the nice list?

Love it or hate it, I have got a story that has got it all. It starts with a young woman named Charlie Javis. Charlie grew up in Westchester, New York. She went to private school, rode horses, and her dad was a hedge fund manager whose resume included places like Goldman Sachs. Now, I'm not just telling you all of this as background info, although it works as that too, I'm telling you this because it makes what happened with Charlie even more mind-blowing. Charlie would go on to found a business called Frank. As in, Frank. Like, honest? And she would tell her origin story like this. When she went to college and was applying for financial aid, she and her parents really struggled with the forms. Her mother ended up in tears on the phone with Wharton over Charlie's financial aid. Now,

listings vary by source, but most places would put the average salary of a Goldman Sachs asset manager at at least $100K, with others putting it at above $200K. While we don't know what type of financial aid had her mother crying on the phone, it wasn't over a Pell Grant. The most mystifying part about this is her repeated claim that her dad was confused by the Free Application for Federal Student Aid form, or the FAFSA. But here's the thing. I have filled out a FAFSA. They're tedious. The way the questions are worded can seem overwhelming. They don't not suck. But they're

not that tricky. It's actually easier than ever because now you can link it directly to the IRS, which will autofill a lot of the information. I'm not going to tell you this is fun. I wouldn't go that far, but it's doable. A grown man who worked in the financial sector for his entire life should have no problem filling it out, even if he did have to add up all their assets. This is the foundational story for her business. Charlie says this experience led her to start Frank, a student aid platform designed to help students apply for federal student aid, which Charlie called the Amazon for College. It sounds good, I guess, but what was that supposed to mean? Anyway, in an interview in 2018, Charlie claimed that her company had helped 300,000 students

get $7 billion in aid. By 2021, she was claiming to have helped 4.25 million students. Now, between 2016 and 2020, there were about 16 million undergrads in the U.S. That number did slightly drop in 2020 for reasons we all remember. But Charlie was claiming to have the email address of about a quarter of all American college students. So what were Charlie and her company doing with all those email addresses that they were collecting from students who did sign up for their services?

Well, buried in the company's privacy information was a notice that the company could sell the email addresses of customers to non-affiliated companies for marketing purposes. And that's where our story gets wild. Have you ever over-promised, told someone you could deliver a product that you definitely couldn't? That was the position Charlie found herself in when. Morgan came by to buy her sweet, sweet email list. Remember, she was claiming to have the updated email address of a quarter of all undergraduates in America. This would give J.P. Morgan an incredible boost over the competition to market to a growth sector before their competitors. Now, I'm actually glossing over the fact that Charlie and the crew at Frank offered a bunch of fake online classes because, honestly, it would be its own episode.

So back to the email list that J.P. Morgan was looking to absorb. They offered Charlie $175 million for the company, essentially just to get this email list, which meant they were paying about $35 a name. Only problem? Charlie didn't actually have the email addresses of 4.25 million college students. Suddenly, she was forced to create an email list. Initially, she tried to keep this scam in-house, asking her director of engineering to generate an email list using the data they already had to just create a bunch of students that looked real enough. When objections were raised, Charlie said, quote, Listen, these old people don't understand. This is how it works. You fake it till you make it. She also allegedly assured her staff that no one would be wearing, quote,

an orange jumpsuit over her plan. Apparently, this wasn't as reassuring as she had thought it was, and the director of engineering refused. This forced Charlie to take her search elsewhere. Persistent Charlie found a professor of data science in New York who was willing to help her create a fake customer list. Upon completion of the list, the professor sent her an invoice outlining his services, including the creation of fake students. Charlie told him she would give him a $4,800 bonus if he sent her back a single line invoice, which he did seven minutes later. Charlie also went out and bought an email list, using it to generate even more addresses in hopes of padding out her list, in total creating a believable but totally fraudulent email list that cost her $175,000, which she turned around and

sold for $175 million. Let's be real, that is a criminally good return on investment. The good times couldn't last, though, and eventually J.P. Morgan tried to use Charlie's email list, only to have a large number of their marketing emails come back as undeliverable. When J.P. Morgan began to investigate, they found that only about 300,000 of the emails were real. At that point, they fired her and then they sued her. Charlie hired Elon Musk's attorney and countersued. Also, just to pause on the J.P. Morgan stuff here for a moment, this is not Charlie's first lawsuit. In 2018, Charlie and her company also settled a lawsuit with the Federal Department of Education for trademark violation and misrepresenting themselves as, quote, designated preparers of the FAFSA.

That same year, Charlie wrote an op-ed for The New York Times that was so full of incorrect information about the FAFSA that it required a long set of corrections from the paper. it required a long set of corrections from the paper. So even back then, questions were being raised about how much value Frank was actually offering people and how much was just upselling. And again, for context, this was upselling to people who were financially struggling and struggling with, and I can't say this enough, a form that millions of people managed to fill out on their own. Careful observers began to wonder just how sketchy and predatory her business practices actually were. But these observers weren't on J.P. Morgan's payroll, apparently. And that's where we leave it today. There is a lot to unpack here, but perhaps one of the most important ideas is that JP Morgan was willing to pay $35 for a real email address. Think about that the next time you give a website

your email address in exchange for free services. For today's tip, you can take straight to the bank. Filling out the FAFSA is annoying and complicated, but you can do it. And you can absolutely do it without spending money on a service to do it for you. We've linked the federal government's help hotline, their Spanish helpline, and the YouTube video they created to help explain the process. These are safe, free resources that you

can use if you're tackling the form for yourself or for your kids. And best of all, they're not scams. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content.

And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.