Who is responsible for JPMorgan’s $175 million acquisition of Frank, the fintech startup accused of fraud?
Several weeks ago, a big story broke through the noise of the financial media and caught the attention of Twitter users and Wall Streeters alike: JPMorgan Chase, the world’s largest bank by market capitalization, sued the 30-year-old founder of student loan startup Frank, which the bank bought for 175 million dollars – and which, as the bank claimed, was full of fraud. The bank accuses the young Frank founder, Charlie Javice, of falsifying 4 million user accounts to trick the bank into the acquisition in 2021. The story made headlines for its juicy details and heavy-hitting players, but one big question remained: Who at. JPMorgan was responsible for the debacle – and how did the sophisticated bank miss the red flags?
My colleague Luisa Beltran tried to discover just that. And her latest deep dive, which you can read here, explores the lawsuit (filed late last year, following a lawsuit filed earlier against the bank by Javice) and her extensive reporting on who the key players are who were involved in the Frank deal. She found executives at the major bank who played a role in the ill-fated acquisition, as well as influential private investors.
As Luisa reports, things started to snowball when the young founder started getting a lot of positive press in early 2021. As Luisa reports:
[In March of 2021, one of Frank’s largest investors] forwarded one of those glowing profiles to an executive in JPMorgan’s Corporate & Investment Bank: Frank had incoming expressions of interest from potential buyers, and JPMorgan “should take a look,” the email said, according to documents that would emerge for nearly two years later in court cases. This letter was then forwarded to Leslie Wims Morris, head of corporate development for JPMorgan Chase’s Consumer & Community Banking business, and another executive. Wims Morris said she would be happy to meet with Frank and, depending on the angle, the bank would consider doing something “on a programmatic basis,” the complaint said.
According to a September 2021 announcement by Javice, Leslie Wims Morris was the lead person on the subsequent Frank acquisition, and Javice also tapped JPMorgan heavy-hitters Jennifer Piepszak and Marianne Lake, co-CEOs of Chase Consumer & Community Banking, also as the respected tech banker Noah Wintroub, who is JPMorgan’s youngest vice chairman ever (an insider told Luisa he wasn’t involved in the Frank deal).
But as Luisa reports, Wims Morris had a lot of help with the deal:
…A broad range of JPMorgan staff from across the firm worked on the due diligence process for Frank, including staff from corporate development, product, consumer, technology, finance, compliance, legal, and risk and controls, the person said.
Meanwhile, JPMorgan CEO Jamie Dimon said the Frank acquisition was under the responsibility of the Chase business led by co-CEOs Piepszak and Lake. As the story goes, JPMorgan conducted weeks of due diligence, had Frank executives visit the bank’s offices for meetings and, crucially, provided data and a list of Frank’s client accounts. That’s when things allegedly took a turn:
In August, JPMorgan Chase’s head of corporate development sent Javice an email with an “unequivocal request” for a list of Frank’s client accounts, according to the JPMorgan complaint. To confirm the bank’s thesis that Frank had developed meaningful relationships with millions of students, the manager wanted the names, dates of birth, e-mails and addresses of Frank’s customers. Javice initially pushed back, arguing that she could not provide the list due to privacy concerns. JPMorgan Chase insisted, and that’s when Javice invented “several million Frank customer accounts of the whole fabric,” the bank’s lawsuit says.
Although the allegations against Javice paint her as a cunning con artist bent on defrauding the massive bank, according to some, Javice appeared to be “a smart, active entrepreneur. A little hungry…Charlie was no different than any other ambitious founder You could tell she was out there to get results, a venture capitalist who invested in Frank told Luisa.
Indeed, it may have been Frank’s impressive—and well-connected—backers that caught the eye of the JPMorgan bankers. As Luisa reports, Frank was backed by a list of influential people in finance and venture capital. Frank raised over $20 million in funding from the likes of early-stage VC firm Aleph, founded by Benchmark’s Michael Eisenberg; Marc Rowan, co-founder and CEO of Apollo Global Management; and Reach Capital. She notes that Rowan and Aleph were Frank’s main investors at the time of the sale, and a venture manager told Luisa that Aleph told other investors about the opportunity to invest in Frank.
I’ll leave you to read Luisa’s amazing story for further details, but suffice it to say that JPMorgan regrets the decision to go through with the deal. But despite the negative publicity, the bank is keeping mum about exactly who is to blame, as Luisa writes:
While being close to the Frank deal certainly can’t be a resume booster, at least to the outside world, JPMorgan is circling the wagons and no one has been marked to take the fall. During the second week of January, JPMorgan shut down the Frank website and deleted the release announcing the acquisition from the site.
It’s one of those cautionary tales that happen periodically on Wall Street that can make bankers and VCs uneasy (How could they miss this?), and which emphasizes both that connections are hugely important on the street, and that even the most respected financiers can, and do, miss red flags. (I’m not doing a Frank and FTX or Theranos comparison, but well, you get the idea.)
In their defense, JPMorgan CEO Dimon made a point that I think is pretty fair: “When you get up to hitting 300 times a year, you’re going to be wrong.”
If you’re the world’s largest bank, these mistakes can sometimes cost you $175 million.
Have a nice weekend,
Anne Sraders
Twitter: @AnneSraders
Email: [email protected]
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE OFFER
– Coin covera Cardiff, Wales-based digital asset protection company, raised $30 million in funding led by Foundation capital.
– Kano intelligencea New York-based provider of alternative investment data, raised $25 million in Series B funding. F-Prime Capital led the round and was joined by Eight Roads Ventures and others.
– Yodawya Giza, Egypt-based digital healthcare startup, raised $16 million in Series B funding. Delivery Hero Ventures and Global Ventures co-led the round and was joined by AAIC investment, Dallah Albaraka, Middle East Venture Partners, C-Venturesand P1 Ventures.
– Marker learninga New York-based distance learning and attention deficit disorder services company, raised $15 million in Series A funding. Andreessen Horowitz led the round and was joined by the venture arm of Richard Branson Virgin Group, Primary Ventures, Difference Partners, Operator partners, Night Venturesand others.
– Macroa New York-based productivity suite that uses AI, raised $9.3 million in seed funding. Andreessen Horowitz led the round and was joined by Crafts, BoxGroupand 3 kV.
– CUB3a Los Angeles and London-based loyalty platform for social media users, raised $6.5 million in Series A funding led by BITE POWER Ventures and Fabric Ventures.
– Sesame Labsa San Francisco-based Web3 marketing startup, raised $4.5 million in seed funding. Wing Venture Capital and Cartridge co-led the round and was joined by DoubleJump, Lead, Moon fire, Samsung, Twin Venturesand others.
– Kasheesha New York-based digital payments platform, raised $3.5 million in seed extension funding. Lil BabyFanatic’s CEO Michael Rubinactor Robin Wright, Odell Beckham Jrand others invested in the round.
– VulnChecka Lexington, Mass.-based vulnerability intelligence company, raised $3.2 million in seed funding. Sorenson Ventures led the round and was joined by In-Q-Tel, Lux Capitaland Aviso Ventures.
– Snapsa Foster City, California-based customizable backend platform for game studios, raised $2.6 million in seed funding led by Andreessen Horowitz.
– VRRBa Miami-based Layer 1 blockchain, raised $1.4 million in pre-funding. Jump Crypto, Taureonand Big Brain Holdings invested in the round.
PRIVATE EQUITY
– Auxo Investment Partners acquired the Fremont, Calif.-based Morgan Royce Industries and Grand Rapids, Mich.-based TACK Electronics, both wiring networks, cable assemblies and box structures. Financial terms were not disclosed.
– Eureka Equity Partners recapitalized Blueprint NYC, a New York-based healthcare engagement agency. Financial terms were not disclosed.
– SPATCO energy solutionssupported by Kian capitalacquired Petro Supply, an Elkridge, Md.-based distributor of petroleum equipment. Financial terms were not disclosed.
DEPARTURE
– Post inventory agreed to acquire Rachael Ray Nutrish, an Orlando-based dog food brand, and Kibbles ‘n Bitsan Orrville, Ohio-based dog food brand, from JM Smucker for 1.2 billion dollars.
– Fund managed by Oaktree Capital Management agreed to acquire Enercon servicesa Kennesaw, Ga.-based engineering and environmental services firm, from AE Industrial Partners. Financial terms were not disclosed.
– Regent agreed to buy the thermal acoustic solutions business unit Alkegenea Buffalo, NY-based specialty materials developer. Clearlake capital supports Alkegen. Financial terms were not disclosed.
OTHER
– Bessemer Venture Partners took over a majority share in Lithify, a Brooklyn-based legal operations platform. Financial terms were not disclosed.
– Beyond ONE acquired Virgin Mobile Middle East and Africa, a Dubai-based mobile virtual network operator. Financial terms were not disclosed.
– Boasso Globala Tampa-based provider of warehousing and transportation services, and Q Super Holdings, a Tampa-based provider of cleaning, testing and repair services, agreed to merge. Financial terms were not disclosed.
– Brookfield Reinsurance acquired Argoa Bermuda-based insurance provider, for about $1.1 billion.
– Cetera Financial Group acquired Wealth advisors, an Overland Park, Kan.-based financial planner. Financial terms were not disclosed.
– IBM acquired StepZen, a Santa Clara, California-based GraphQL optimization and scaling platform. Financial terms were not disclosed.
IPOS
– Nexttracker, a designer and manufacturer of solar tracking systems based in Fremont, Calif., raised $638.4 million in an initial public offering of 26.6 million shares priced at $24. The company originally planned to raise up to $535.9 million through the sale of 23.3 million shares priced between $20-23.
SPAC
– Allurion Technologiesa Natick, Mass.-based weight loss technology company, agreed to go public via a merger with Compute Health Acquisition Corp, a SPAC. The deal will value the company at $500 million.
FUNDS + FUNDS OF FUND
– Kaino’s capitala Dallas-based private equity firm, raised over $1 billion for a fund focused on food and consumer companies.
HUMAN BEINGS
– Highview Capitala Los Angeles-based investment firm, employee Jonathan Greenway as managing director Director and promoted Dan Pickmann to the managing director. Previously, Greenway was involved AlixPartners.
– Ten Coves Capitala Darien, Conn.- and New York-based growth equity firm, promoted Steven Lula to partner and Kyle Kruse to vice president.
