Wall Street hails Charlie Javice conviction—but wonders how JP Morgan failed to catch young woman’s $175 million fraud

Dealmakers have little sympathy for Charlie Javice, the startup founder who was convicted last week of tricking JPMorgan Chase into buying her startup. Javice, who just turned 33 last month, faces years in prison after a jury found her guilty of multiple counts of fraud. One venture executive said they would’ve been shocked if a jury had acquitted Javice. “This was an open and shut case … [Javice] created fake customers and left a clear paper trail!” the VC wrote in an email.

“This was just regular ego driven fraud,” one private equity executive told Fortune. These individuals, and others quoted in the story, asked not to be identified in order to speak freely.

But even as the Wall Street community concludes Javice got what she deserved, some are asking how she was able to con JPMorgan Chase—a giant and sophisticated bank with an army of top-notch lawyers—in the first place. 

A hot startup's $175M con

In 2017, Javice launched Frank, a financial aid startup that helped users fill out the complex Free Application for Federal Student Aid forms. Four years later, Javice was a 28-year-old media darling who appeared often on CNBC, and had made the Forbes 30 under 30 list, when she sold Frank to JPMorgan Chase for $175 million in September 2021.

The union didn’t last long. About fifteen months later, in December 2022, JPMorgan Chase sued Javice, accusing the founder of inflating the size of Frank’s customer base. JPMorgan Chase claimed it bought Frank believing that it had 4 million customers but later discovered it had roughly 300,000. It transpired that Javice had hired a data scientist to create fake documentation that grossly inflated Frank’s customer base, but the bank didn’t figure out that they’d been fooled until months after the deal closed.

Javice’s defense focused on blaming JPMorgan Chase for being careless with the acquisition. The entrepreneur claimed that the bank rushed the deal because it mistakenly thought that Bank of America was looking to buy Frank. Jamie Dimon, JPMorgan Chase's CEO, also took a personal interest in the transaction. Dimon met with Javice about three weeks before the bank clinched the deal and was “very enthusiastic” about the transaction, and told her in July 2021 that JPMorgan should “get the deal done."

Unfortunately for Javice, focusing on JPMorgan’s lack of diligence didn't prove an effective strategy. “You can’t make up a customer list. The defense that JPMorgan Chase should’ve discovered on its own that she provided a false customer list, I don’t think it’s a defense at all,” said Andrew George, a partner with law firm Bourelly George and Brodey who specializes in white collar criminal defense.

Javice is scheduled to be sentenced on August 26, and if the court follows federal sentencing guidelines, she will receive between 14 years and 17.5 years in prison, though the judge could opt to give Javice considerably less time since she has no prior criminal history. 

JPMorgan Chase declined comment.

Falling in love with a deal

While it is now clear that Javice set out to commit fraud, there is still the question of how JPMorgan Chase failed to detect her scheme in the first place. Some dealmakers and attorneys told Fortune that the bank would only have had to conduct a sample testing of Frank’s customer list to discover the fraud. 

JPM hired third party vendor Acxiom to check that the lines of data provided by Javice totaled 4.2 million. Acxiom offered to verify the entries using reverse-phone data linking phone numbers to names and addresses, Bloombeg reported. JPMorgan turned down the offer, the story said. 

“JPMorgan could’ve easily figured this one out,” a second attorney, who advises startups, told Fortune.

There are, though, reasons explaining why the bank didn't have Acxiom validate the information. In August 202, JPMorgan Chase did ask for Frank’s user data, but Javice refused to give it, citing privacy issues, Fortune has reported. (Javice's attorneys argued that sharing Frank's user data violated numerous privacy laws and federal regulations that limit the permissible use and sharing of FAFSA application data as well as personally identifiable information.)

There was significant back and forth between the parties before JPMorgan Chase agreed to have Acxiom validate Frank’s customer information, rather than having the startup provide personal identifying information directly to the bank. JPMorgan Chase was trying to protect the personal information of Frank customer accounts and avoid privacy issues, Fortune has reported.

Meanwhile, other factors likely contributed to the rushed deal. Dimon’s interest in Frank, combined with the bank’s mistaken belief that another buyer was lurking, very likely contributed, dealmakers said. A second PE executive pointed to “fear of missing out” or FOMO, that influences “some investors when they are doing deals and causes them to not be as cynical as needed.”

There is also human nature. Most people are honest, and this leads companies and investors to mistakenly believe they are dealing with someone who is honest, George said. It likely seemed inconceivable to many that Javice, an upper-middle class woman who graduated from the University of Pennsylvania, Wharton, would try to fake data. Javice comes off as “credible, charismatic and likeable,” which are qualities that con artists often have, George said.

Several dealmakers pointed to Bernie Madoff, who orchestrated the largest Ponzi scheme in history, causing thousands of investors to lose an estimated $64.8 billion. In hindsight, Madoff’s shenanigans seem “painfully obvious,” but the fraud went on for decades, George said. “No one could imagine that this person was doing it. In the moment, no one thinks to look,” he said.

Buyers, including lenders and investors, often “fall in love” with a deal, causing them to not look closely enough at the business they are interested in, the second attorney said. “As lawyers, we try to tell them to look at the details [of a deal] and they don’t want to. It happens all the time,” they said.

This story was originally featured on Fortune.com