JPMorgan’s negotiating speed under scrutiny from the US banking regulator
JPMorgan Chase’s due diligence on a recent spate of acquisitions is being scrutinized by U.S. regulators in a review that includes a $175 million deal with a startup founder charged this week with defrauding the bank.
The Office of the Comptroller of the Currency, which oversees national banks, planned a specific audit of JPMorgan’s dealmaking after the bank bought dozens of smaller companies in 2021 and 2022, according to people familiar with the matter. One of them was the start-up Frank for student support. Founder Charlie Javice is charged with conspiracy to commit bank, banking and securities fraud.
The charges come four months after JPMorgan filed a civil lawsuit alleging that Javice, 31[ads1], told the bank that Frank had 4.25 million customers when it actually had only 300,000. She stood to make $45 million from the sale of the company, the prosecution has said.
The OCC audit was planned before JPMorgan’s lawsuit, the people said. But the fraud allegations will make the Frank deal a crucial area of focus because of the bank’s failure to uncover the alleged fraud during the purchase process. CEO Jamie Dimon has since described the deal as a “big mistake”.
JPMorgan’s dealmaking spree included 80 acquisitions and strategic investments in 2021 and 2022, Dealogic statistics show. Activity picked up dramatically after Dimon said in January 2021 that the bank “should be scared shitless” of new threats from tech companies, according to a person familiar with the M&A strategy.
The deals included the purchase of The Infatuation food blog and luxury travel agency Frosch, as well as a controlling stake in Volkswagen’s payments arm and a minority stake in Brazilian digital bank C6.
JPMorgan and the OCC declined to comment. Attorneys for Javice did not respond to requests for comment. In a countersuit against JPMorgan, Javice denied the bank’s allegations of falsifying accounts.
Javice founded Frank in 2017 to help clients apply for financial support for their studies. JPMorgan announced the Frank deal in September 2021, acquiring it through the bank’s Chase retail banking division with the aim of giving the lender greater access to younger customers.
Prosecutors alleged in court documents that Javice repeatedly misled JPMorgan by paying a computer science professor to produce the information required to close the deal and pay $105,000 for a list of millions of students.
The $175 million Frank purchase was not significant for a bank that has more than $2 billion in assets and generated more than $37 billion in profits last year. But it has now emerged as one of the most notorious deals JPMorgan has done in years.
Problems surfaced months after the deal closed as JPMorgan tried to figure out why email delivery and open rates to Frank customers were far lower than expected. The internal investigation uncovered what the authorities now claim was a months-long scheme to fabricate data.
Additional reporting by Eric Platt and Sujeet Indap
