J.P. Morgan bought Frank – a platform that helped students with financial aid – for $175 million in September 2021. This was supposed to help tap the student market, and use the service’s customer data to pitch banking products.
It turns out, though, that Frank had only about 300,000 real users, not the 4.25 million that they claimed.
- They apparently hired a data science professor to generate “synthetic” identities to pad the list (when their own internal team refused)
- They purchased third‑party student lists which were added to their own customer file.
After the deal closed, a test email campaign flopped. Apparently 70% of the emails to Frank’s users actually bounced.
The founders of the company were charged with conspiracy, wire fraud, bank fraud, and securities fraud in spring 2023. Both were convicted in March 2025, and about six weeks ago Charlie Javice was sentenced to 85 months repayment of $300 million. She’s on bail pending appeal.
The crazy thing in all of this is that J.P. Morgan had to pay her legal fees to defend against the charge that she’d defrauded them.
Under Delaware law, and Frank’s bylaws, Javice had “advancement rights” for defense costs arising from service as an officer of the company. That amounts to “pay now, fight later.” That’s actually pretty standard, though defending officers against their own fraud is less so!
And Javice and her co-founder took full advantage of this, it seems to me, running up about $115 million in legal fees. J.P. Morgan wants to stop paying! But fraud alone doesn’t void J.P. Morgan’s obligation to pay legal expenses.
- Advancement is a contractual right separate from whether the officer ultimately acted lawfully. A fraud conviction generally defeats indemnification, but doesn’t erase advancement for the defense through appeals.
- The company has to pay first, and try to claw back the money later (but the money will have already been spent – so good luck). If there’s no eventual entitlement to indemnification, the company can seek repayment of advanced sums
But J.P. Morgan thinks they at least shouldn’t have to write a blank check for whatever amounts Frank founders want to spend on their defense while being charged, tried, and prosecuting their appeals, such as:
- Daily hotel room upgrades in Manhattan
- Unlimimited meals
In February 2024, a court already rejected J.P. Morgan’s pleas about overspending – arguing that reasonableness review comes later. There’s an appeal to the Second Circuit pending.
That said, Delaware advancement law covers reasonable defense expenses, not “lavish” living costs or personal indulgences (see both Tafeen v. Homestore and Danenberg v. Fitracks). “Advancement extends only to those costs reasonably incurred in defending the covered proceeding.” So, when an executive’s counsel bills for hotels or meals, the test is whether those costs are necessary to the defense, not simply incurred during it. The court will probably say the costs were excessive, and Chase should get its money back, but the money is gone.
Most federal criminal cases end in conviction, with around 2% of cases going to trial, ~ 82% of those getting convicted and less than 1% actually getting acquitted. So those odds, plus the conviction and sentence already in place, make a final judgment of fraud and disqualification for indemnification likely. But so is personal bankruptcy! And Chase Travel isn’t even earning commissions of the bookings through The Edit, as far as I’m aware.
Chase also can’t go after the lawyers. The obligation to repay advanced fees runs only to the covered individual, not to their counsel.
(HT: @crucker)
$115 million in legal fees?? It was two years from charge to conviction, that’s over a million a week.
JPMorgan Chase & Co. plays hardball with competitors and with their own clients. It is nice that they get to play hardball with another team that is talented at playing hardball. As it is with many lessons, they don’t come cheap.