A lot of math has to happen before a judge arrives at the two most important numbers in any sentence for a financial crime: how much time the defendant must serve, and how much money they must repay.
These calculations are being heatedly argued over in the case of Charlie Javice, due to be sentenced in Manhattan on Monday after being found guilty of fraud for using bogus user data to trick JPMorgan Chase into paying $175 million for her student financial aid startup, Frank.
At the center of the dispute is the word “loss.”
Should US District Judge Alvin K. Hellerstein sentence Javice based solely on the bank’s $175 million gross loss, as prosecutors want?
Or should he consider the bank’s net loss, subtracting for what Javice’s lawyers say was the website’s legitimate value and potential?
“The court is required to account for the value of what JPMC actually obtained in exchange for its purchase price,” the defense wrote last week. “Regardless of the number of users, Frank had real value.”
Federal prosecutors say the sentencing math — how much time, how much money — is simple.
Javice, they argue, should serve 12 years in prison and pay $300 million in restitution — $283 million to JPMorgan Chase and $17 million to the bank’s insurer.
It’s a sum, they say, that reflects the “enormous victim loss” suffered by JPMorgan Chase, the country’s largest bank.
Javice, as a federal jury in Manhattan found in March, repeatedly lied to the bank about Frank’s worth, promising Chase would gain access to the names and data of the website’s 4 million Gen-Z users — young adults the bank was eager to sell checking accounts and credit cards.
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In fact, Frank had data for only 300,000 users.
“Based on the defendant’s lies, JPMC projected it could generate more than $500 million in revenue from selling banking products to Frank’s customers,” prosecutors argue.
“Had JPMC known the truth — that Frank had only a few hundred thousand users — the bank would not have acquired Frank.”
Prosecutors’ massive restitution demand includes the original 2021 sale price. It also includes the $2 million in salaries Chase paid to Frank employees and $1 million in salary paid to Javice herself, as Chase’s “managing director in charge of student solutions,” in the year before the fraud was discovered.
But the bulk of prosecutors’ demand is made up of tens of millions of dollars in statutorily mandated “enhancements,” penalties that reflect the sophistication and duration of the fraud, along with Javice’s role as its mastermind.
In the two years between the start of negotiations and the implosion of the Frank-Chase merger, “Javice engaged in a brazen fraud, lying over and over about her company, Frank, and its customer base,” prosecutors wrote the judge in their mid-September sentencing submission.
“Only on the eve of her sentencing does Javice now claim that she accepts responsibility,” prosecutors complain. “Her self-serving assertions ring hollow when measured against her conduct.”
Lawyers for Javice, meanwhile, argue that the sentencing math is far more complicated, in large part because Javice, herself, is complicated.
Back in her 20s, Javice, now 33, was a fintech phenom.
She was touted in Forbes’ “30 Under 30” for creating what she billed as the leading, fastest-growing financial wellness platform for Gen Z.
The website did more than help students and parents easily fill out the perplexing “FAFSA,” the Free Application for Federal Student Aid. It offered a suite of resources to college-bound students, including career and financial advice.
“Frank was a real company, not a fraud,” her lawyers wrote the judge earlier this month. “Its technology worked,” they argue, and its striving CEO and growing user base had real value that was recognized by titans in the fintech field.
Aleph’s Michael Eisenberg and Apollo’s Marc Rowan were early Frank investors and board members. During the ten months of negotiations for the JPMorgan Chase sale in 2021, she met one-on-one for 30 minutes with the bank’s CEO, Jamie Dimon.
“It was free to use, simplified the bewildering FAFSA process, offered a suite of resources to college-bound students, and opened doors to higher education for individuals who might otherwise have been locked out,” they argue.
JPMorgan Chase purchased more than just marketing access to Frank’s ultimately fictional 4 million Gen-Zers, the defense argues.
They also wanted access to Frank’s future affiliations with students and colleges, and to its “highly skilled internal team,” including Javice herself.
If the judge subtracts this “value” that Javice brought to the merger, much of the enhancement penalties goes away, the defense argues.
“When JPMC acquired Frank, it received the value of its technology, organizational infrastructure, and dominant position in the student market,” the defense argues. “It received precisely what it bargained for in the Merger Agreement.”
No, say prosecutors — the bank wanted access to those 4 million Gen-Zers. Hard stop.
Frank had very little income, no real assets and “did not have valuable technology,” they argue.
“The sole source of value in Frank was its purported relationship with millions of college-age students,” prosecutors argue. “Those millions of relationships with students turned out to be illusory, and, as a result, so too was Frank’s value.”
Last week, the judge rejected Javice’s request that the sentencing be postponed due to health concerns that remain redacted in the public record.
He has yet to decide Javice’s request that she be allowed to remain free pending a planned appeal of her verdict, a request to be argued and decided at the sentencing.
