Several weeks ago, a big story broke through the noise of the financial media and got the attention of Twitter users and Wall Streeters alike: JPMorgan Chase, the world’s largest bank by market cap, was suing the 30-year-old founder of student loan startup Frank, which the bank acquired for $175 million—and which, as the bank alleged, was rife with fraud. The bank is accusing the young Frank founder, Charlie Javice, of faking 4 million user accounts to trick the bank into the acquisition in 2021. The story made headlines for its juicy details and heavy-hitting players, but a big question remained: Who at JPMorgan was responsible for the debacle—and how did the sophisticated bank miss the red flags?
My colleague Luisa Beltran set out to discover just that. And her recent deep dive, which you can read here, explores the lawsuit (filed late last year, following a lawsuit filed earlier against the bank by Javice) and her extensive reporting on who the key players are that were involved in the Frank deal. She found executives at the big bank that played a role in the ill-fated acquisition, as well as influential private investors.
As Luisa reports, things started to snowball when the young founder started getting lots of positive press in early 2021. As Luisa reports:
[In March of 2021, one of Frank’s largest investors] forwarded one of these glowing profiles to an executive at JPMorgan’s Corporate & Investment Bank: Frank was getting inbound expressions of interest from prospective buyers, and JPMorgan “should have a look,” the email said, according to documents that would come out nearly two years later in lawsuits. This missive was then forwarded to Leslie Wims Morris, head of corporate development for JPMorgan Chase’s Consumer & Community Banking business, and another executive. Wims Morris said she would be happy to meet with Frank, and, depending on the angle, the bank would consider doing something “on a programmatic basis,” the complaint said.
According to an announcement by Javice in September of 2021, Leslie Wims Morris was the point person on the subsequent Frank acquisition, and Javice also thanked JPMorgan heavy-hitters Jennifer Piepszak and Marianne Lake, co-CEOs of Chase Consumer & Community Banking, as well as respected tech banker Noah Wintroub, who is the youngest ever vice chairman of JPMorgan (a person familiar told Luisa he wasn’t involved in the Frank deal).
But as Luisa reports, Wims Morris had a lot of help on the deal:
…A wide range of JPMorgan employees from across the firm worked on the due diligence process for Frank, including staff from corporate development, product, consumer, technology, finance, compliance, legal, as well as risk and controls, the person said.
Meanwhile, JPMorgan CEO Jamie Dimon said the Frank acquisition was under the purview of the Chase business led by co-CEOs Piepszak and Lake. As the story goes, JPMorgan conducted weeks of due diligence, having Frank execs visit the bank’s offices for meetings, and, crucially, provide data and a list of Frank’s customer accounts. That’s when things allegedly took a turn:
In August, JPMorgan Chase’s head of corporate development sent Javice an email making an “unambiguous request” for a list of Frank’s customer accounts, according to the JPMorgan complaint. The exec, to confirm the bank’s thesis that Frank had developed meaningful relationships with millions of students, wanted the names, dates of birth, emails, and addresses of Frank’s customers. Javice initially pushed back, arguing she couldn’t provide the list owing to privacy concerns. JPMorgan Chase insisted, and that’s when Javice invented “several million Frank customer accounts out of whole cloth,” the bank’s lawsuit said.
Though the allegations against Javice paint her as a wily con woman set on deceiving the massive bank, according to some, Javice appeared to be “a smart, active entrepreneur. A bit hungry…Charlie wasn’t different than any other ambitious founder. You could tell that she was out there for results,” a venture capitalist who invested in Frank told Luisa.
Indeed, it may have been Frank’s impressive—and well-connected—backers that caught the eye of the JPMorgan bankers. As Luisa reports, Frank was backed by a roster of influential folks in finance and venture capital. Frank raised over $20 million in funding from the likes of early-stage VC firm Aleph, founded by Benchmark’s Michael Eisenberg; Marc Rowan, cofounder and CEO of Apollo Global Management; and Reach Capital. She notes that Rowan and Aleph were Frank’s lead investors at the time of the sale, and a venture exec told Luisa that Aleph told other investors about the opportunity to invest in Frank.
I’ll let you read Luisa’s terrific story for further details, but suffice it to say, JPMorgan is regretting its decision to go through with the deal. But despite the negative publicity, the bank is keeping mum about exactly who is to blame, as Luisa writes:
While being anywhere near the Frank deal certainly can’t be a résumé booster, at least to the outside world JPMorgan is circling the wagons, and nobody has been tagged to take the fall. During the second week in January, JPMorgan shut down the Frank website and deleted the release announcing the acquisition from its website.
It’s one of those cautionary tales that happens every so often on Wall Street that could make bankers and VCs uneasy (How could they miss this?), and which underscores both that connections are massively important on the Street, and that even the most respected financiers can, and do, miss red flags. (I’m not making a Frank and FTX-or-Theranos comparison, but, well, you get the idea.)
In their defense, JPMorgan CEO Dimon did make a point that I think is pretty fair: “When you’re getting up to bat 300 times a year, you are going to…have errors.”
If you’re the world’s biggest bank, sometimes those errors can cost you $175 million.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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