JPMorgan Chase’s due diligence on its recent acquisition spree is being scrutinized by US regulators in a review involving a $175 million deal with a startup founder who was criminally charged this week with defrauding the bank.
The Office of the Comptroller of the Currency, which oversees national banks, designated a specific audit of the JPMorgan deal after the bank bought dozens of smaller companies in 2021 and 2022, according to people familiar with the matter. One of them was Frank Apprentice for Student Financial Aid. Its founder, Charlie Javis, has been charged with conspiracy to commit bank, wire and securities fraud.
The charges come four months after JPMorgan filed a civil lawsuit alleging that Javis, 31, told the bank Frank had 4.25 million customers when in fact he only had 300,000. Prosecutors said she would make $45 million from selling the company.
An OCC review was due ahead of JPMorgan’s lawsuit, the people said. But allegations of fraud will make the Frank deal an important area of focus because of the bank’s failure to disclose the alleged deception during the purchase process. CEO Jamie Dimon has since called the deal a “huge mistake”.
Dealogic stats showed JPMorgan’s deal contract involved 80 strategic acquisitions and investments in 2021 and 2022. Activity picked up dramatically after Dimon said in January 2021 that the bank “should fear relentlessly” about emerging threats from tech companies , according to a person familiar with the merger and acquisition strategy.
The deals included the purchase of food blog The Infatuation and luxury travel agent Frosch, as well as a controlling stake in Volkswagen’s payments arm and a minority stake in Brazilian digital bank C6.
JPMorgan and OKCC declined to comment. Javice’s attorneys did not respond to requests for comment. In a counterclaim against JPMorgan, Javis denied the bank’s allegations of account fraud.
Javis founded Frank’s firm in 2017 to help clients apply for financial aid for their studies. JPMorgan announced the Frank deal in September 2021, buying it through Chase’s retail banking division with the goal of giving the lender greater access to younger customers.
Prosecutors alleged in court filings that Javis repeatedly misled JPMorgan by paying a data science professor to manufacture the information needed to close the deal and pay $105,000 to a list of millions of students.
Frank’s $175 million buyout was insignificant for a bank that has more than $2 trillion in assets and made more than $37 billion in profits last year. But it has now emerged as one of the worst deals JPMorgan has struck in years.
Problems arose months after the deal closed when JPMorgan sought to determine why Frank’s email delivery rates and customer opening were so much lower than expected. Its internal investigation uncovered what authorities now allege was a months-long scheme to fabricate data.
Additional reporting by Eric Platt and Sujit Indap
“Reader. Infuriatingly humble coffee enthusiast. Future teen idol. Tv nerd. Explorer. Organizer. Twitter aficionado. Evil music fanatic.”