Fintech

Jamie Dimon Says Frank Acquisition ‘Was A Huge Mistake’ After JP Morgan Alleges Millions Of Fake Customers

JP Morgan Chase’s chief executive Jamie Dimon admitted that the bank made mistakes in its $175 million acquisition of the student financial aid startup Frank after it launched a lawsuit against its founder Charlie Javice, alleging she had created 4.25 million users to inflate the value of the business.

Dimon faced questions from analysts on the bank’s fourth quarter earnings call over the September 2021 deal and lawsuit that was reported by Forbes earlier this week. Dimon conceded that the acquisition was a “huge mistake” but says that the U.S.’s biggest bank needed to take risks. “Obviously when you are getting up to bat 300 times a year you will have errors, and we don’t want our company to be terrified of errors and not do anything,” Dimon said.

Analyst Mike Mayo of Wells Fargo Securities quizzed Dimon on who would be held accountable for the failed acquisition, and JP Morgan’s plan to boost technology spending to $12 billion in 2022 in a bid to compete with fintechs. “I’m wondering what that says for the financial discipline for the 15 deals that you have pursued,” says Mayo, who did note that given JP Morgan’s size, the Frank deal was small — the bank earned the purchase price of Frank in just two days.

Dimon defended JP Morgan’s record on financial discipline, adding that Chase, the U.S. consumer and commercial arm of the bank was responsible for the deal, but a centralized acquisitions team had done “extensive due diligence” on the startup. “We are very disciplined and you see that in a lot of different ways: You see that in our leveraged lending book, the success of our investments, the quality of our products and services, and it’s no different for acquisitions,” says Dimon. “Let me tell you the lessons learned when this thing is out of litigation.”

Forbes revealed earlier this week that the Wall Street giant is suing 30-year-old Charlie Javice, founder of Frank, and Frank’s chief growth officer Oliver Amar over claims that the pair sought to boost the fintech’s user numbers by creating 4.25 million fake accounts. The startup only had 300,000 customers, according to the lawsuit filed late last year in the U.S. District Court in Delaware.

“Javice first pushed back on JPMC’s request, arguing that she could not share her customer list due to privacy concerns,” the complaint continues. “After JPMC insisted, Javice chose to invent several million Frank customer accounts out of whole cloth.”

The suit alleges that Javice and Amar asked Frank’s director of engineering to create fake customer details after JP Morgan requested details on users as part of the takeover talk. After the engineer refused, Javice was then alleged to have paid a data science professor $18,000 to create millions of fake accounts using “synthetic data.” JP Morgan opened an investigation after test marketing campaigns to Frank’s users following the acquisition were “a disaster,” the suit says.

Javice’s lawyer denied the allegations. The Forbes 30 Under 30 alum has filed her own suit against JP Morgan alleging that the bank sought to “retrade the deal” after rushing to acquire “rocketship” startup Frank, which offered software to guide young Americans to seek financial aid with student loans and tuition.

JP Morgan shut down Frank on Thursday after the suit was made public. Javice had negotiated nearly $10 million as part of the merger, plus a $20 million retention bonus, and had been working as a managing director overseeing student-focused products. The bank terminated her employment in November.

JP Morgan’s spending on technology had already rattled analysts and investors even before details of the Frank lawsuit had become public. Dimon had warned analysts last January that “you got to spend a few bucks” to stay ahead of competition from hedge funds like Citadel, rival lenders and fintechs like Chime and Affirm.

Dimon spent $2 billion in 2022 alone on upgrading data centers to work with the cloud, and made a string of acquisitions and investments in fintechs around the world, like payments startup Renovite in September, Ireland’s Global Shares and Greek’s Viva Wallets. JP Morgan shares rose 1.3% in mid morning trading after the fourth quarter results beat profit estimates.

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