Photographer: Michael Nagle/Bloomberg
The senior JPMorgan Chase & Co. executive who led due diligence on its $175 million acquisition of student-loan startup Frank testified that the bank wrongly guessed that Bank of America Corp. was its rival for Charlie Javice’s firm.
In her second day of testimony in Javice’s fraud trial, Leslie Wims Morris, JPMorgan’s former chief of corporate development, offered insight into the bank’s thinking as it approached the deal. She said Thursday that the bank made its bid based on what Frank’s financial adviser, LionTree, said would be required to beat out the competition.
Javice, 32, is charged with inflating the number of Frank users from fewer than 300,000 to more than 4.25 million to get the largest U.S. bank to buy her company in 2021. She and her co-defendant, former Frank executive Olivier Amar, have pleaded not guilty. They’ve suggested that JPMorgan rushed its due diligence and wasn’t focused on user numbers.
Wims Morris’ testimony, which ended the trial’s first full week, was a key piece of the government’s effort to show that Javice failed to tell the truth about what the bank claims was its main motivation for the deal: the prospect of millions of new, young customers for savings and checking accounts, credit cards, loans and other financial products.
Javice, who faces a maximum sentence of 30 years in prison if convicted, has been a somewhat animated courtroom presence. Frequently seen smiling and chatting with her lawyers, she’s also been called out by prosecutors for commenting audibly on testimony she claims is incorrect.
“All we are asking is that she just cut it out,” Assistant U.S. Attorney Micah Fergenson said at one point to US District Judge Alvin Hellerstein, who cautioned both sides to keep their conversations quiet.
Before Wims Morris took the stand, the prosecution called two witnesses who also testified about Frank user numbers. The first, Houston Cowan, was a junior member of the LionTree team while the second, Behram Panthaki, was a Frank operations executive who left the year before the JPMorgan acquisition.
At the end of Cowan’s testimony, Hellerstein scolded Fergenson for burying the jurors in detail.
“You are losing the jury,” the judge said. “I can tell by the blank stares that I am getting.” Hellerstein, who last year presided over the trial of Archegos Capital Management founder Bill Hwang, made
The jury perked up during the testimony of Wims Morris. Now the chief executive officer of JPMorgan’s auto loan unit, she told jurors about direct contacts with Javice in person and through frequent Zoom calls conducted between her Park Avenue office and Javice’s Miami Beach apartment. In a controlled and precise manner, she explained how the deal came together quickly.
She said she first met Javice on a Zoom call after an introduction by venture capitalist Michael Eisenberg, who was a Frank investor, in March 2021. Wims Morris said the bank had preliminary discussions with Frank that spring, then shelved them, before reviving the talks in July when JPMorgan learned Frank was on the market, she said.
Javice made a full management presentation to JPMorgan on July 7, followed by two full-day sessions between both sides the following week. JPMorgan put in a non-binding bid for $175 million on July 14.
She said she found out two days later that JPMorgan’s bid had been accepted, kicking off a three-week exclusivity period during which the parties worked toward an agreement. The acquisition closed in September.
Wims Morris said they believed JPMorgan’s main competitor was Bank of America. In reality, Capital One Financial Corp. had put in a $125 million preliminary bid for Frank but withdrew without completing due diligence.
Almost 350 people worked on JPMorgan’s due diligence on the deal, Wims Morris said. But she said she trusted Javice “100%” on her claim that the company had millions of users.
“We relied on what came out of her mouth,” Wims Morris told jurors. She said she wouldn’t have pursued the deal if she hadn’t believed Javice’s claims.
Frank, which is now shuttered, offered a free tool to help students fill out their Free Application for Federal Student Aid, or FAFSA, which is required by most colleges in making financial aid decisions. Prosecutors allege Javice and Amar paid a data scientist to create fake emails and other information to support their inflated customer count.
Wims Morris said she reviewed a Frank “data dictionary” showing as many as 136 different FAFSA questions. These included identifying information and financial data about students and their parents. Javice said Frank had at least that information for more than 4.25 million people, the executive testified.
Wims Morris testified on Wednesday that Frank’s user numbers were very important to JPMorgan. “We were squarely focused” on increasing the bank’s share of customers in the 18-to-24 age demographic, she said on the stand. JPMorgan projected that acquiring Frank could yield $500 million in value, Wims Morris said.
A firm hired by JPMorgan to validate the data told the bank it was “consistent” with the customer numbers provided by Javice, Wims Morris said. She said she didn’t know that most of the data had been created by the outside data scientist.
Wims Morris and Javice texted each other about the data validation in an exchange that was shown to jurors Thursday.
“All good?” Wims Morris asked.
“Exact count match as expected,” Javice responded, adding, “I wasn’t worried :)”
The trial resumes on Monday.
The case is US v Javice, 23-cr-00251, US District Court, Southern District of New York (Manhattan).