SEC: Buzzy Start-Up Founder Committed 'Old-School Fraud'

The tables have turned for Charlie Javice, who landed a spot on Forbes' 30 Under 30 list and sold her college financial planning platform, Frank, to JPMorgan Chase for $175 million. On Tuesday, the DOJ and SEC charged the 31-year-old with criminal and civil fraud charges in relation to the sale. CNBC reports three of the criminal charges against her—conspiracy, wire fraud affecting a financial institution, and bank fraud—carry a maximum sentence of 30 years each. SEC official Gurbir Grewal on Tuesday called it "an old school fraud," per Axios. Bloomberg quotes Manhattan US Attorney Damian Williams as saying, "She lied directly to JPMC and fabricated data to support those lies—all in order to make over $45 million from the sale of her company."

Prosecutors allege Javice "falsely and dramatically" jacked up Frank's number of subscribers in order to "fraudulently induce" JPMorgan into the acquisition, with the SEC accusing Javice of paying a professor to create millions of fake clients and then providing the list to "a third-party validator, who in turn reported it to" the bank. JPMorgan has said much the same: In the suit it filed against Javice in December, it alleged that she convinced it that Frank had 4.25 million customers by employing a data science professor to create a swath of fake accounts.

JPMorgan says it uncovered the alleged deception when it tried to email about 10% of those customers and had seven out of 10 emails bounce back. It claims the platform had fewer than 300,000 authentic users. The AP reports Javice was released Tuesday on a $2 million bond and agreed not to contact key figures in the case except for her mother and her mother's boyfriend.

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As for its suit, JPMorgan submitted emails between Javice and the professor in support of its claim, including one in which Javice allegedly wrote, "Will the fake emails look real with an eye check or better to use unique ID?" In her countersuit, Javice cited language on the site itself, stating it was "implausible" that JPMorgan "was led to believe Frank had 4.25 million registered users when its website publicly claimed the company had helped more than 350,000 people access financial aid." (More JPMorgan Chase stories.)