U.S. authorities charged the former CEO of a student loan startup for allegedly defrauding Wall Street giant JP Morgan Chase by falsifying customer data ahead of the bank’s move to buy the company for US$175 million.
The U.S. attorney’s office for the Southern District of New York charged Charlie Javice, former CEO of Frank — a company that provided an online platform to apply for student loan assistance — with one count of conspiracy to commit bank and wire fraud, one count of wire fraud affecting a financial institution, and one count of bank fraud.
Javice was arrested last night and is expected to appear in court today. The charges against her have not been proven.
According to the indictment, Javice, who founded the company and served as CEO, misrepresented the number of the platform’s users to potential acquirers, including JP Morgan, which eventually acquired the firm.
Authorities alleged that she told prospective buyers that the platform had 4.25 million users when it actually had less than 300,000.
When JP Morgan asked for data to verify the claim, it’s alleged that she hired a data scientist to create a synthetic data set and provided that data to a third-party vendor, which reported to the bank that the data set showed over 4.25 million users.
The bank subsequently agreed to acquire the company for US$175 million, with Javice receiving US$21 million for her equity stake and a US$20 million retention bonus.
Additionally, U.S. authorities alleged that Javice subsequently purchased data on 4.5 million students on the open market, and provided that data to the bank, portraying it as the company’s user data.
The U.S. Securities and Exchange Commission (SEC) also charged Javice with fraud in a civil case, seeking disgorgement, penalties and an officer and director ban. Those allegations haven’t been proven either.