The Journal. - The Fraud Trial That Became JPMorgan's Headache

Episode Date: April 2, 2025

Charlie Javice sold her financial aid startup Frank to JPMorgan Chase for $175 million. But soon after the ink on the deal was dry, the bank discovered that their new acquisition was not at all what it seemed. WSJ’s Alexander Saeedy explains how a trial about fraud committed against JPMorgan resulted in the bank feeling the heat. Kate Linebaugh hosts.  Sign up for WSJ’s free What’s News newsletter.  Further Listening:  - A $175 Million ‘Huge Mistake’  - JP Morgan CEO Jamie Dimon on What’s Next for the Economy  Learn more about your ad choices. Visit megaphone.fm/adchoices

At a federal courthouse in Manhattan, a witness was called to the stand. He was testifying for the prosecution. The witness, Patrick Vivore, had been the chief software engineer at a financial aid startup called Frank. On the stand, he recounted a story from back in 2021. Frank's founder, a woman named Charlie Javis, was on the precipice of selling her business to JP Morgan Chase. It would be a big, life-changing deal.

And this witness testified that Javis had an unusual request. She tells him, I need you to create a synthetic database containing four million profiles, essentially artificial data. That's our colleague Alexander Saidi. So how does this engineer testify that he responded to this request? Well, at first he says, is this even legal? And he then says he refused to do it because he wasn't sure it was even legal, what was being asked of him.

In reply, Charlie said to him, don't worry. I don't want to end up in an orange jumpsuit. It was when the jumpsuit comment happened that it was like, this is a real trial about real crimes. There are 12 real people sitting here listening and deciding whether or not you're gonna really go to jail or not. And when he said it in front of the jury, you could feel it in the room

that the stakes just got a lot higher. And I'm not trying to be dramatic, it really did feel that way. This trial, which concluded Friday, exposed not just the actions of Charlie Javis. It also revealed ignored warnings and lax due diligence at JP Morgan on a deal that CEO Jamie Dimon has called a, quote, huge mistake. Why was this trial worth paying attention to? It was worth paying attention to because it offered a pretty unprecedented insight into how the sausage gets made at

arguably the most powerful bank in the world. The big question was, well, how did this happen at the biggest bank in the country that's supposed to be an expert in deal making? And did you get the answers? I would say I did get the answers. Welcome to The Journal, our show about money, business, and power. I'm Kate Leimbach. It's Wednesday, April 2nd. It's Wednesday, April 2nd.

Coming up on the show, how a fraud trial exposed embarrassing details about JP Morgan. This episode is brought to you by FX's Dying for Sex on Disney+. Based on the podcast of the same name, Dying for Sex tells the story of Molly, who is diagnosed with stage 4 breast cancer. Determined to feel everything she can before she can't feel anything, she decides to leave her unhappy marriage to explore her sexuality with some encouragement from her best friend Nikki. FX's Dying for Sex, streaming April 4th only on Disney+. Sign up now at Disneyplus.com.

Hi, my name is Charli Javis and I'm the founder and CEO of Frank. Thank you so much for joining us today. What you're hearing is exhibit 1.8 in the case of the United States of America, the Charlie Javis. This video is from an archived webinar where Javis is introducing her financial aid business, Frank. To date, we've helped close to one million students get access to financial aid.

We're so proud of our work. Javis graduated from the Wharton School of Business. She was a high achieving wonderkint with a gift for marketing herself. When she was in her 20s, she started Frank. Why did she name it Frank? That's a good question. She named it Frank according to a TV interview that I saw. It means I'm forthright with you. And so

Frank kind of represented that as a name because it just meant honest and also... So that's why it was called Frank. Frank was a tool that was meant to make it easier for students applying for financial aid for college or graduate school. At the core of the trial was the 2021 sale of Frank to JPMorgan for $175 million. JPMorgan had bought Frank, in large part, for its millions of young users. The bank says that what they felt that they were buying was a list of customers, a highly vetted and high-quality list of customers.

When did it start to become clear to JPMorgan that there was a problem? It came up on them slowly and then all at once. During the trial, JP Morgan executives recounted the moment that they started to get worried. It happened some months after the deal when Javis delivered a file containing Frank's more than 4 million customers. And Chase says, great, why don't we run a test marketing campaign with a portion of the total users, just see what the results are and we'll iterate our marketing campaigns from there.

And as the executives testified, only 28% of the emails sent in that campaign even delivered to an inbox. And the average for a Chase marketing campaign is 99%. So that means that the email addresses in the data file were not legit and likely did not have anything to do with the names of the people who were in the data file. with the names of the people who were in the data file. And that led to the total meltdown of the relationship.

Correct. She was put on administrative leave. The bank ran an internal investigation into the matter. And then they fired Charlie as a result, and denied her the remainder of her $20 million retention bonus that she was given as part of the purchase agreement when the bank bought her startup. This was the data that Javis had asked her chief software engineer to fake. And remember, he testified that when he refused, Javis made that comment that she didn't want to end up in an orange jumpsuit.

So Javis looked for someone else. She found a math professor at Queens College and paid that professor $18,000. She told him, this is the whole synthetic data thing, we have this seed data set of 300,000 profiles. We want you to create a larger data file with 4 million profiles, but whose characteristics are identical to the seed file. So, he just thought he was doing a consulting project outside of his normal tasks as a professor. What did he say on the stand?

He said the names are fake. The names are made up. And he said it would have been pretty obvious if you had done some basic due diligence. And at the trial, it became clear that J.P JP Morgan hadn't done that basic due diligence. That's next. Okay, Martin, let's try one. Remember big. You got it. The Ford It's a Big Deal event is on. How's that?

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Oh, boy. Choose from a world of destinations, if you can. Air Canada. Nice travels. At the trial, Charlie Givis's defense took an interesting approach. Instead of focusing on the actions of their client, they put the spotlight on J.P. Morgan. The key argument for them was that this wasn't fraud. What we're seeing is actually buyer's remorse.

J.P. Morgan, they actually just made a bad investment, and they're really mad about that. Her top two defense attorneys making this argument are very experienced. Charlie's two top attorneys are Jose Baez and Ronald Sullivan. They're kind of a team that have worked on a lot of cases together, most recently, including the Harvey Weinstein trials. They were co-attorneys for Harvey as a defendant in those cases. So they know how to play things for a jury, because it's the jury who's deciding everything here.

— In this trial, that strategy was on display after the former software engineering chief testified about Javisa's orange jumpsuit comment. Immediately, one of her attorneys sprung into action. Like before the judges even like passed the mic to him, he like jumps out of his seat and he's like, you wanted to date Miss Javis, didn't you? You sent her flowers, you sent her messages saying you have a terrifically fit body. He's like ranting and raving at this guy on the witness stand.

You know, the judge is like, can you please move to the podium? He like knocks over like a computer monitor on his way. He's like kind of out of breath. Like it was very embellished behavior. Beyond trying to discredit the prosecution's witnesses, the defense tried to make the case that J.P. Morgan didn't thoroughly vet Frank's business. They called a former lower-level J.P. Morgan employee to the stand.

There was a younger person in their, I think, early 30s who was called to testify who was essentially a bit of a mid-level employee. She was responsible for taking notes during meetings and building PowerPoints. She wasn't a decision maker, but she was helping the decision makers. And there was a Skype message that Charlie's defense attorneys pulled up that this young woman had sent to her boss saying, you know, Charlie's startup, they barely make any revenue. So how can we even know that she's got these customers? And her boss sent back to her, well, it'll all come out in confirmatory due diligence,

don't worry about it. And now with hindsight, it's like, wow, she was actually asking the exact right question and nobody was really taking it that seriously. Javisa's lawyers cross-examined another JPMorgan employee, the executive who led the deal to buy Frank. The defense lawyers pulled up some of this executive's text messages. And in one text, she referred to an annual shareholder letter written by JP Morgan CEO

Jamie Dimon. And she had underlined segments of that letter and sent it to the whole team working on the Frank deal. And in that annual letter, he actually had a section about due diligence. And he said in one part of it, you know, sometimes you don't need to do analysis to know if a deal is a good deal. Sometimes you just, you just know. You know, that's me paraphrasing what he said. And Chavis' attorney said, isn't this proof that you guys were willing to rush your work

to move ahead on this deal. And she said, it was a joke to my team. I didn't really mean it. But the point was made to the jury, which was that some people knew that things were moving really fast inside of JP Morgan. And nobody would necessarily pump the brakes enough to double check all the work.

JP Morgan did do some due diligence. They hired a third-party company to examine and validate the more than 4 million users that Frank said it had. Now what this firm really seemed to do was to take the synthetic data file that Charlie had created, essentially go and count the number of rows and how many rows had information in it. So it didn't actually validate that the people were real, but they sort of took an Excel spreadsheet and said,

okay, there seem to be 4 million people with first names and last names. At the trial, another JP Morgan executive said that he expected this third party company had been doing more than just counting rows in a spreadsheet. In testimony, a representative from the third-party company said it actually offered to do more validation work on the data file, but the JP Morgan didn't express interest in doing that. So the defense just tried to paint a picture saying the bank either, you know, didn't care about how many customers there really were, or, you know, they rushed their work to, you know, get this deal done and missed key details in the process.

In closing arguments, the prosecution told the jury this was a clear case of fraud. The defense said it was buyer's remorse. And after five weeks of testimony, it was up to the 12 people on the jury to decide. Last Thursday, they started their deliberations. And on Friday, they were still deliberating. And then around 2.30, a note was sent to one of the clerks

running the court that said the jury has reached a verdict. The founder of that FinTech startup, Frank, Charlie Javis, has been found guilty at a fraud trial. If you recall. Javis and her co-defendant, a former executive at Frank, were both found guilty on three counts of fraud and one count of conspiracy to commit fraud. Both could go to jail for decades.

And then Charlie's defense attorney said, well, we want to poll the jury. Because sometimes, you know, these juries give a verdict and you poll every jury member to make sure that there's not someone who's like kind of on the fence about things or whatever. And they polled all 12, being like, on count one, did you find the verdict guilty?

Yes, yes. They went through everyone on every charge and everyone unanimously said yes. We think they're guilty of everything. How did she react? Silently. She was completely silent. And you could you could feel that she was stunned, you could feel that her family who's

been in court every day, were also stunned. Yesterday, Javis' lawyers were in court again. Alex was there, and he sent us this voice memo. Hi, so just got out of court. Charlie and her co-executive have been required to now wear ankle monitors. There was two hours back and forth where their attorneys both tried to say this wasn't necessary. In Charlie's case, they said, you know, her main source of income now is teaching Pilates.

It's, you know, cumbersome to teach Pilates while you're wearing an ankle monitor. After a lot of back and forth, the judge said, we're gonna request that you wear this ankle monitor. So lot of back and forth, the judge said, we're going to request that you wear this ankle monitor. So here we go. One thing her defense lawyer said is that Javis will never get her good name back.

Was this trial also damaging for JP Morgan? It was damaging for JP Morgan in the sense that it showed that some of the people in charge weren't asking the right questions about the investment that they were embarking to make. Now, this deal cost the bank $175 million. That, in the context of J. of JP Morgan, a very large financial institution, is not a lot of money. But it goes to, I think, a bigger point. Who is making sure that everything at this complex financial institution is legit and above board and the data is real and we know everything that's going on. The events of the Frank acquisition suggest at least there's some checks missing in the

work that some of its teams are doing at a very high level. But now, at least JP Morgan can say, it was duped by a convicted fraudster. Correct. I think everybody acknowledges it was a mistake to do it, but they can also say, hey, we were just lied to. We relied on this individual and the data she provided. You know, we can't always protect ourselves from lies. But I think they at least feel vindicated through the justice system.

Javis is scheduled to be sentenced this summer. Her attorneys are petitioning for a new trial. That's all for today, Wednesday, April 2nd. The Journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.