TUITION INFLATION
In 2023-2024, the average cost of tuition and fees for full-time students was $11,260 for in-state residents at public four-year colleges and $41,540 at private nonprofit four-year institutions. The cost of room and board added approximately $14,650 at private colleges and $12,770 at public colleges (College Board Research, 2024) Over 43 million Americans currently have student loan debt, contributing to a total outstanding student loan debt exceeding $1.7 trillion (College Board Research,2024).
FRANK FINANCIAL AID
Frank Financial Aid is a startup founded in 2016 by 30-year-old Charlie Javice. The company used WeWork coworking spaces in New York to conduct its operations. Frank provides students with financial assistance to help cover the cost of their education. The program uses artificial intelligence to analyze students’ tax returns and applications they fill out on the platform. It uses this data to recommend and apply for student grants, aid, and affordable loans. Frank helps students navigate the complex and lengthy application processes to receive financial assistance. Frank started by assisting the consumers in filling out the Free Application for Federal Student Aid (FAFSA), but it expanded to offer a broader range of services, tools, and resources. The program provides students with information about the cost of attending college and the different types of financial aid available. This information can be accessed through the program’s website, which includes a financial aid calculator that allows students to estimate the cost of attendance at different colleges and universities. Frank makes revenue through subscriptions on its website. The main subscription package charges students $19.90 a month to access Frank’s financial support team, which can help with scholarship applications; discounts on other memberships, like Spotify; and gives access to a cash advance while waiting for financial aid. Frank’s management team said the company grew fast, acquiring at least four million customers. (Frank Financial Aid, 2022)
Charlie Javice is an ambitious entrepreneur with lofty dreams. She graduated from the University of Pennsylvania with a degree in finance. Javice gained importance due to her appearances in major news outlets, and her significance was further reinforced by the coverage she received. She was featured on various podcasts, discussing entrepreneurship, rejection, and Frank’s journey to reaching nearly 10 million households. Javice was celebrated as a female disruptor and was twice featured in Insider in 2018 and 2021. However, the controversies surrounding her leadership at previous companies she owned: PoverUp and Tapd, were never brought to light. According to the founder, both companies were very successful but failed to attract customers. (Forbes, 2023)
JP MORGAN’S FRANK
In September 2021, JPMorgan Chase, the largest bank in the United States, declared its acquisition of Frank. The bank was willing to pay $175 million for Frank, as it wanted to expand its capabilities for students and families. However, according to JPMorgan, Frank and its founder, Charlie Javice, were less legitimate than they were. The bank is now suing Javice, claiming that it was defrauded. JPMC terminated Javice’s employment. Because of the merger, JP Morgan Bank hired Javice to lead the Student Solutions team within the Digital Products division. As part of her employment agreement, the bank offered Javice a 20 million dollar retention bonus, to be paid out over three years, on the condition that she either stayed with the company or was terminated without cause. Additionally, Javice would receive $8 million in stocks, provided she remained employed at JP Morgan Bank.
As a part of the acquisition of Frank, JP Morgan Chase did an investigative audit of the platform. JPMC’s request for diligence presented an ethical dilemma for Charlie Javice, the founder of Frank. Frank did not have the 4.265 million customer accounts it had represented to JPMC, and Javice was faced with deciding whether to reveal the truth or create fake customer accounts. Initially, Javice pushed back on JPMC’s request, citing privacy concerns, but ultimately chose to invent millions of Frank customer accounts out of thin air. Javice sought the assistance of a data science professor to create fake customer details using synthetic data techniques. E-mails between Javice and the Data Science Professor reveal that the customer list consisted of counterfeit data. The Data Science Professor had to create names and addresses, with Javice even suggesting fabricating physical addresses. The list also included multiple entries of customers living, attending high school, and attending college in the same town and state, making it appear fishy. Javice was mainly concerned with the e-mail addresses, wanting them to look real, and even suggested using a unique ID instead. The Data Science Professor struggled to add specific college names to the list, and Javice suggested randomly drawing a school in the same state to solve the issue. The Data Science Professor created a list of 4.265 million fake customer accounts, which Javice submitted to a third-party vendor for validation.
Meanwhile, Amar (an executive at Frank) separately purchased a list of 4.5 million students from ASL Marketing, Inc., which they later used to deceive JPMC and cover their tracks after the Frank acquisition closed. JP Morgan Chase did not detect fake customer accounts during the merger. (JPMorgan Chase Bank, NA v. Javice,2022)
Afterward, JPMC’s marketing team requested the consumer data to send test e-mails to potential users. Unsurprisingly, the results of the marketing test campaign were disastrous. Specifically, JPMC sent marketing test e-mails to what it believed were 400,000 unique Frank customers. Of the individuals contacted, only 28% of e-mails were delivered, compared to a 99% delivery rate JPMC usually sees with similar campaigns. Just 1.1% of the e-mails were opened, compared to 30% for a typical JPMC campaign. This made JPMC very suspicious, and they started an investigation. JPMC uncovered the Fake Customer List and other knowingly false representations. Frank had, in reality, only 300.000 customers. (JPMorgan Chase Bank, NA v. Javice,2022)
Complex Legal Issues
JPMorgan Chase Bank filed a lawsuit against Charlie Javice in December 2022. JPMorgan accused Javice of fabricating approximately 4 million customer accounts during the acquisition of her company, Frank, to justify the $175 million purchase price. The bank alleged that Javice misrepresented the scale and quality of Frank’s user base. After JPMC filed a lawsuit against her, Charlie Javice filed a countersuit claiming JPMC terminated her to avoid having to pay her. After Javice was hired at JPMC, she stated that the bank was mining the data from Frank’s platform to illegally offer different services to existing customers, such as credit cards or loans. Javice claims the bank management started boycotting her and sabotaging her plans for Frank. Meanwhile, in the summer of 2022, the federal government announced several significant changes to student financial aid regulations, and the US economy turned volatile, causing Frank’s business model to be less relevant and JPMC to want to try to reverse the merger. (JPMorgan Chase Bank, NA v. Javice,2023)
In 2024, Charlie Javice was indicted on multiple charges, including wire fraud, securities fraud, bank fraud, and conspiracy to commit bank and wire fraud. Javice pleaded not guilty to the charges and was released on a $2 million bond. Her trial is scheduled for October 2024. The case involves significant legal wrangling, with Javice’s defense team accusing JPMorgan of withholding potentially exculpatory documents that could support her case. This includes internal communications and due diligence documents related to the acquisition (Fast Company, 2024)
Javice’s legal battle has been complex. Initially, a Delaware Chancery Court judge ruled that JPMorgan must cover some of her legal defense costs related to the fraud allegations, based on indemnification clauses in the 2021 merger agreement. However, the court denied her attempt to have JPMorgan cover the costs associated with her counterclaims against the bank. These counterclaims argue that JPMorgan wrongfully terminated her and accused her of fraud to “retrade” the acquisition deal. Additionally, the court ruled that JPMorgan is not responsible for covering her legal expenses related to seeking insurance coverage.
Questions:
1. How should companies balance profit motives with ethical considerations in their business practices, particularly when these goals conflict?
2. Which party, Charlie Javice or JPMorgan Chase, acted more unethically during the acquisition of Frank and the subsequent events?
3. How would a consequentialist versus a non-consequentialist evaluate the actions of Charlie Javice and JPMorgan Chase in the context of the Frank acquisition and subsequent legal battle?