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“Stupidity.”
“Very poor due diligence.”
“Someone who is a fool.”
On Monday, a Manhattan judge used all of these terms to describe the JPMorgan Chase bankers who fell victim to a fraud perpetrated by fintech entrepreneur Charlie Javice.
You don’t often hear a sentencing judge taunt a fraud victim like this — not that it mattered to his bottom line.
In sentencing Javice to seven years in prison and $287.5 million in restitution for using fake data to clinch the 2021 sale of her startup Frank, US District Court Judge Alvin K. Hellerstein said his job is “punishing her conduct and not JPMorgan’s stupidity.”
“Fraud remains a fraud,” Hellerstein explained, “whether you outsmart someone who is smart or someone who is a fool.”
During the sentencing, Javice’s lawyers had tried to convince Hellerstein that the bank’s status as a victim was not so cut-and-dried, and that $175 million was not a serious amount of money to lose for a bank worth nearly $4 trillion. “That’s nothing,” trial evidence had shown one bank executive scoffing about the sale price.
Still, the sentencing shows that even when the victim is a banking giant like JPMorgan — who the defense said should have known better — blaming the victim is little help.
“Whether you outsmart someone who is indifferent or someone who is careful, it’s the conduct,” the judge explained.
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Read more about Charlie Javice
An ‘audacious’ fraud
Back in 2021, some 300 in-house diligence officers had vetted JPMorgan’s decision to buy the then-28-year-old’s startup Frank, a platform that helped students fill out federal financial aid applications.
The bank didn’t realize until a year after the merger closed that Javice’s claimed database of 4 million Frank users — college-ready young adults the bank hoped to pitch for credit cards and checking accounts — was a fiction.
Nearly every promising Gen Z prospect on Javice’s user spreadsheets had been made up. Their phone numbers, home addresses, and emails were made up, along with any accompanying Social Security numbers, dates of birth, and personal financial data.
JPMorgan Chase had spent $175 million to buy Frank without ever actually seeing its spreadsheets. Javice had dodged their requests, citing privacy concerns over sharing her users’ personal data. An independent vendor ultimately validated only that the data fields for 4.25 million “users” were “populated versus null/blank.”
“Audacious, multi-faceted, fueled by greed,” prosecutor Micah Festa Fergenson called the fraud during the sentencing.
Frank was “a crime scene,” not a viable acquisition, the prosecutor told the judge.
Hellerstein spent all day Monday sentencing Javice, a fintech wunderkind once featured in Forbes’ 30 Under 30 list, still in her 20s when she attracted investment capital from Aleph’s Michael Eisenberg and Apollo’s Marc Rowan and met one-on-one with JPMC’s CEO, Jamie Dimon.
It was halfway through the sentencing that the largest bank in America started getting chided.
It began when defense lawyer Ronald S. Sullivan, Jr., told the judge that Frank had value — real potential and talent — beyond its user base.
“Frank did good — Frank worked,” Sullivan said, even if it worked for far fewer people than Javice claimed. Frank never had contact data for more than 300,000 users.
The bank had also rushed to clinch the merger, fearful that another rival bank might do so, the lawyer said.
“A lot of blame can be assessed against JPMorgan Chase,” Hellerstein agreed. “It’s not relevant” to sentencing, the judge added. “Nevertheless, it’s in the background.”
The defense lawyer pressed his point.
“Ms. Javice’s case is not the prototypical type of fraud case,” Sullivan told the judge. “This case was a 28-year-old versus 300 investment bankers from the largest bank in the world that did due diligence in 22 business days.”
The lawyer added, “Part of the rush was what they called a defensive play, that they didn’t want another bank to get this product.”
“What consideration should be given for JPMorgan Chase’s very poor due diligence?” Hellerstein asked.
“I think your honor said it best,” Sullivan answered. “I’ll adopt your honor’s phraseology — it should be in the background in your consideration as a relevant factor in thinking what is a fair and appropriate sentence.”
The judge then asked, “How far?” in the background of his considerations JPMorgan’s poor due diligence should remain. The lawyer laughed, “Not too far — it should be pretty close up, your honor.”
Ultimately, the judge disagreed, saying no matter how smart or foolish the victim may be, a fraud is a fraud.
An attorney for JPMorgan Chase who attended the sentencing did not return phone and email requests for comments on this story left after business hours.
Javice’s seven-year prison sentence falls between the 18 months hoped for by the defense and the 12 years requested by prosecutors. In allowing her to remain free during what could be a year or more of appeals, Hellerstein gave a nod to Javice’s many letters of support and her years-long struggle with infertility. She intends to use the time to continue trying to start a family with her partner, defense lawyer Alexandra Shapiro had told Hellerstein.
“If there is a chance for it to succeed,” the judge responded, “I want to give it to her.”
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