JPMorgan’s dealmaking flurry under scrutiny from US regulator

JPMorgan Chase’s due diligence on a recent flurry of acquisitions is being scrutinised by US regulators in a review that includes a $175mn deal with a founder of a start-up who was criminally charged this week with defrauding the bank.

The Office of the Comptroller of the Currency, which supervises national banks, scheduled 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 student financial aid start-up Frank. Its founder Charlie Javice has been charged with conspiracy to commit bank, wire and securities fraud.

The charges come four months after JPMorgan filed a civil lawsuit alleging that Javice, 31, told the bank that Frank had 4.25mn customers when in fact it had only 300,000. She stood to make $45mn from the sale of the company, prosecutors have said.

The OCC audit was scheduled before JPMorgan’s lawsuit, the people said. But the fraud allegations will make the Frank deal a crucial area of focus due to the bank’s failure to uncover the alleged deception during the purchase process. Chief executive Jamie Dimon has since described the deal as a “huge mistake”.

JPMorgan’s dealmaking spree included 80 purchases and strategic investments in 2021 and 2022, Dealogic statistics show. The activity picked up significantly after Dimon said in January 2021 that the bank “should be scared shitless” about emerging threats from technology companies, according to one person familiar with its mergers and acquisitions strategy.

The deals included the purchase of The Infatuation food blog and luxury travel agent Frosch, as well as a controlling stake in Volkswagen’s payments arm and a minority stake in the Brazilian digital bank C6.

JPMorgan and the OCC declined to comment. Lawyers 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 customers apply for financial aid for their studies. JPMorgan announced the Frank deal in September 2021, buying 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 filings that Javice repeatedly misled JPMorgan by paying a data science professor to manufacture the information required to close the deal and paying $105,000 for a list of millions of students.

The $175mn Frank purchase was not material for a bank that has more than $2tn in assets and generated more than $37bn in profits last year. But it has now emerged as one of the most notorious deals JPMorgan has done in years.

Problems emerged months after the deal closed when JPMorgan sought to determine why email delivery and open rates to Frank customers were far lower than expected. Its internal investigation uncovered what authorities now allege was a months-long scheme to fabricate data.

Additional reporting by Eric Platt and Sujeet Indap