Charlie Javice Indicted for $175 Million Frank Fraud

Frank was a financial services application which made it easier for students to fill out the FAFSA. Last year JPMorgan Chase filed a lawsuit against Charlie Javice, the founder of Frank alleging that she had misrepresented the number of users and suing her for fraud. Charlie Javice has now had an opportunity to file her counterclaim and argue about why her actions were not fraud. After the claim and counterclaim was filed Charlie Javice ended up indicted in the Southern District of New York for wire fraud and bank fraud charges.

Original video about Frank:


Initial lawsuit:

Charlie counterclaim:

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00:00:00:03 - 00:00:22:09
Bennett Tomlin
Yesterday, the Southern District of New York indicted Charlie Javice on wire fraud and bank fraud charges. Charlie Javice was the founder of Frank, a company we've talked about on this channel before who helped college students fill out the FAFSA. What's the last video on it for the full details? But in short, Frank was purchased in 2021 by JPMorgan Chase for $175 million.

00:00:22:26 - 00:00:52:04
Bennett Tomlin
And after purchasing it, J.P. Morgan apparently realized that 4 million of the 4.3 million claimed users were fake. Allegedly, Charlie hired a data science professor to help her create the other 4 million users. And Frank actually had less than 300,000 users. Charlie has denied JPMorgan's allegations and presumably will plead not guilty to these charges. But she also really didn't deny all the charges.

00:00:52:09 - 00:01:11:05
Bennett Tomlin
Now, I'm not a lawyer, but much of her defense focused on there is no way JPMorgan would actually believe Frank had 4.3 million users. Unfortunately for her, instead of just the civil suit against her from JPMorgan, she also now has to deal with these criminal charges. And I don't think the US prosecutor is going to want to hear.

00:01:11:13 - 00:01:36:20
Bennett Tomlin
It would be absurd to believe the things that I said. The fact pattern laid out in the indictment very closely matches what JPMorgan alleged, presumably because it appears several executives of JPMorgan were interviewed by prosecutors in the Southern District of New York as they were assembling this case. Broadly, that set of facts is that Charlie started shopping Frank around for an acquisition, lied about the number of users claiming 4.3 million to try to get that acquisition.

00:01:37:10 - 00:01:57:13
Bennett Tomlin
JPMorgan tried to check their number of users, which means Charlie hired this data scientist to make the fake users because her chief of engineering refused to do it. More specifically, the chief of engineering reportedly said, I don't want to do anything illegal. And Charlie tried to calm their nerves, explaining that we don't want to end up in orange jumpsuits, meaning Charlie also would not want to do anything illegal.

00:01:58:13 - 00:02:40:27
Bennett Tomlin
Whoops. In another conversation with this engineer, the engineer explicitly told Charlie that Frank had approximately 142,000 users who had started a FAFSA and a total of only 293,192 users. This is far less than the 4.25 million who Frank claimed had started a FAFSA in some of their communications with JPMorgan. Charlie went to the data science professor, gave them the full 142,000 user list of people who had started a FAFSA, told the data scientist that it was only a sample from a database of 4 million and asked the data scientist to make synthetic data with 4 million entries that approximated what the 140,000 looked like.

00:02:40:28 - 00:03:03:00
Bennett Tomlin
The indictment also reiterates what we talked about before, which is that Charlie convinced the data scientist to change their invoice to hide what they were doing in exchange for a bonus. What this newly revealed is that JPMorgan was not the only bank. She tried this story with another Manhattan based investment bank. Also got to hear her pitch. And again, she reiterated that they had 4.25 million users.

00:03:03:01 - 00:03:30:29
Bennett Tomlin
The indictment also includes a slide from one of Frank's tests where they say frank thesis distribution is the power in fintech, and it continues further down 4.25 million students trust Frank. Charlie and Frank were apparently trying to make the argument that the reason a fintech company would be valuable is their ability to reach their customers. You may remember from my last video I hypothesize that the reason JP morgan wanted Frank in the first place was to try to convert their college students into Chase customers.

00:03:30:29 - 00:03:56:26
Bennett Tomlin
Jp morgan presumably purchased Frank because they hoped they would eventually be able to turn those college students into profitable chase customers. And there is nothing Chase likes more than profitable Chase customers. Frank was apparently making the exact same argument to try to convince Chase to buy them. Also, hilariously, on this slide, they claim we know more about our students than any lender, college or employer, which, yeah, I guess is true.

00:03:57:06 - 00:04:14:09
Bennett Tomlin
I know more about the characters I make up for my Dungeons and Dragons game than anyone else on earth, and this is basically the same thing. Literally no one else has ever heard of most of Frank's users. So of course, Frank has more information on these made up people than anyone else. Broadly, the indictment matches what we already knew from the civil case.

00:04:14:09 - 00:04:41:08
Bennett Tomlin
I'm just grateful that we're actually seeing movement and some of these white collar cases. Charlie Javice indicted. Sam Bankman-fried indicted. Joe Klein indicted, Mashinsky being pursued on fraud charges in New York. I'm hoping that this represents a meaningful surge towards enforcement against these white colored criminals who so often are allowed to skate because they're complex. Financial crimes seem less real than the ones which get brutally prosecuted every single day.

00:04:41:08 - 00:04:50:15
Bennett Tomlin
If you want to know more about this story and the details of how this fraud was allegedly perpetrated at Frank, check out my last video on it. And thank you all for joining me for this quick update.

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