Death, Taxes, and Due Diligence

INTRODUCTION

This seemingly low-profile acquisition involving a student-loan sourcing start-up and a banking giant has drawn the eyes of many, including M&A and financial investment analysts. Figuring out why requires a bit of due diligence.

HISTORY OF A “HUGE MISTAKE”

To set the stage, this deal and the proceeding fraud case center around young New York upstart Charlie Javice and her startup, Frank, which aimed to help students seek and secure financial aid. The Frank platform revolved around the goal of simplifying the financial journey of students navigating the post-secondary education system in America. The key to this was optimizing the most critical pre-existing service: the Free Application for Federal Student Aid (FAFSA). In the words of Ms. Javice, “[the] product streamlines and simplifies the FAFSA with smart technology that pulls from Common App accounts and tax returns, allowing users to fill out the form in as little as four minutes.” The commendable goal of making education financing more accessible, along with some evidence of early success, helped catch the eye of several investors, as Ms. Javice and Frank secured a total of $20.5 million in funding over three rounds between 2017 and 2021, with some of the more prominent investors including Chegg (NYSE: CHGG), Aleph, Silicon Valley Bank, Gaingels, and Marc Rowan, the co-founder and CEO of Apollo Global Management, one of the world’s largest private equity firms.

Frank not only caught the eye of early-stage investors but also global financial giants such as JPMorgan. In addition to being “much more aggressive” in searching for takeovers in the start-up market, JPMorgan was interested in deepening its connections with students and expanding its presence in educational financing. Motivated by this interest, JPMorgan pursued Frank and ultimately acquired the platform for $175 million in September 2021. As part of the deal, JPMorgan brought Ms. Javice on as Head of Student Solutions on the Digital Products team. While the Frank deal initially seemed like a boon to JPMorgan’s efforts to accelerate its strong foundation with students, it would ultimately be characterized by JPMorgan CEO Jamie Dimon as a “huge mistake.”

Following the wholesale acquisition of Frank, JPMorgan discovered that nearly four million of Frank’s customers were allegedly not linked to real users. The bank alleges that when it sent marketing test emails to the customer lists provided by Frank, only 28% were delivered, and a mere 1.1% were opened. The purported 4.25 million customers JPMorgan believed to have gained in the deal were discovered to be closer to only 300,000 verifiable users. In response, JPMorgan terminated Ms. Javice’s employment and filed a civil suit in December 2022 against her and others, alleging securities fraud, conspiracy to commit fraud, and fraudulent concealment, among other charges. JPMorgan’s allegations also led the Department of Justice to formally charge Ms. Javice in April 2023 with conspiracy to commit wire and bank fraud, wire fraud, bank fraud, and securities fraud.

After suing Ms. Javice, JPMorgan shut down the Frank platform and is now hoping to learn from the experience as it puts the debacle behind it. The question remains: how did a “fake it till you make it” start-up founder dupe one of the largest financial institutions in the world? Well, the recent criminal trial and accompanying evidence have begun to illuminate some of the circumstances.

“BASIC DILIGENCE”

At the center of the investigation into Ms. Javice’s fraud were the numbers presented to JPMorgan’s team during the due diligence portion of the acquisition talks. Due diligence refers to the comprehensive review of a target company’s business, legal, financial, operational, and other relevant details to evaluate its suitability for acquisition. This process lies at the heart of every acquisition and is often the most critical component of the deal, as it is intended to identify potential risks or liabilities that could affect the deal.

While Frank’s mission was admirable and appeared to be a great fit for JPMorgan’s interest in growing its services in educational spheres, one of the most valuable assets in a service-based acquisition is the service’s consumer base. At trial, JPMorgan testified that it was very interested in Frank’s user numbers, as the bank’s primary goal was to cross-market services to students and other young people who supposedly comprised the startup’s customer base. The bank's level of stringency during due diligence, however, raises questions about whether the user numbers were truly a priority.

During the pre-acquisition phase of the deal, JPMorgan enlisted Acxiom LLC to assist in its due diligence efforts, in particular the task of vetting Frank’s user data. While jurors at the criminal trial were presented with evidence that around 350 JPMorgan employees worked on the due diligence phase of the Frank acquisition, they also heard witness testimony that JPMorgan turned down two opportunities to verify the user numbers provided by Ms. Javice before closing the deal. Matthew Toland, an executive at Acxiom, testified that when he offered JPMorgan the option to run a more advanced verification process, including a reverse-phone number check on the Frank user data, the bank declined. Mr. Toland further testified that after Acxiom confirmed that Frank had 4.2 million rows of data, he emailed JPMorgan to ask whether it wanted to verify the user data, but received no response. On the stand, Mr. Tolland explained that “[t]he engagement was to take the file that Frank provided and determine whether the fields were occupied or blank,” a statement that appears to conflict with JPMorgan’s claim that user numbers were a key driver of the acquisition.

The trial also revealed internal concerns over the numbers within JPMorgan. One employee messaged her boss via Skype, “how do we verify her claims of access to 5 M[illion] households,” because “absent tangible revenues—how will we even know?” Making the situation more damning, Adam Kapelner, a University of Pennsylvania Wharton School Ph.D., testified that Ms. Javice paid him $18,000 to create the user data that Acxiom was asked to check. On cross-examination, he further testified that the synthetic numbers would have been revealed as fake with “some basic diligence,” such as calling a few of the phone numbers. Testimonies like these placed a magnifying glass on JPMorgan and its role in the deal, during a trial that would typically focus solely on the defendant’s alleged misrepresentations and deception.

To be clear, the trial record and subsequent guilty verdict demonstrate that Charlie Javice defrauded JPMorgan and used fraudulent, synthetic data to help close the deal. However, this situation has also cast a spotlight on JPMorgan’s shortcomings in this acquisition. As David Donovan, an executive vice president at technology-consulting firm Publicis Sapient, put it: if JPMorgan is blaming the deal on straight fraud, then “that means [its] vetting teams need to be better [at] detecting this.”

While we may never know why JPMorgan’s due diligence on the Frank deal missed the mark, several theories have emerged, including Ms. Javice’s lawyers' stance that JPMorgan rushed the deal out of fear that a rival financial institution might acquire Frank first. This theory is supported by testimony from Capital One executives that Capital One was very interested in Frank and even had a $125 million bid on the table and JPMorgan’s own testimony that they erroneously saw Bank of America Corp. as competition for Frank. Others—including JPMorgan’s rival Wells Fargo—have generally questioned whether JPMorgan exercised proper financial discipline amid a broader spree of acquisitions. This latter theory seems plausible, given the series of banking-adjacent deals JPMorgan made in the years surrounding the Frank deal, along with CEO Jamie Dimon’s 2020 pledge to be “much more aggressive with acquisitions across the board.”

MOVING FORWARD

On March 29, 2025, Charlie Javice was found guilty of defrauding JPMorgan. In addition to potential jail time for Ms. Javice, JPMorgan may be able to recover funds related to the Frank acquisition. Whether JPMorgan can recover the full $175 million or additional damages remains to be seen.

In the end, while this is largely a case of fraud and deceit, it also serves as a sobering reminder of the importance of the due diligence process—even the largest bank in the United States can be duped.

*The views expressed in this article do not represent the views of Santa Clara University.