JP Morgan ordered to pay Frank founder Javice's lawyers while they sue her

By Jef Feeley

JPMorgan Chase & Co. must pay Frank founder Charlie Javice’s defense costs in its suit accusing her of defrauding the bank in its $175 million acquisition of her college-loan-planning site.
 

Delaware Chancery Court Judge Kathaleen St. J. McCormick concluded Monday JPMorgan was legally obligated to cover Javice’s legal bills, rejecting the bank’s argument that her alleged fraud fell outside the scope of the 2021 merger agreement. The ruling likely also covers Javice’s defense to criminal fraud charges brought by federal prosecutors over the disputed deal.

JPMorgan sued Javice and Olivier Amar, another Frank executive, for fraud in Delaware federal court in December, claiming they falsified records to show the site had more than four million customers when it actually had less than a tenth that number. JPMorgan has since shut down the Frank site.

Javice and Amar both turned around and sued JPMorgan for legal fees in Delaware Chancery Court, saying they deserved coverage under the bank’s policies since they became JPMorgan employees after the buyout. The bank’s attorneys countered that the fraud allegations negated its obligations.

While the merger agreement contained language addressing fraud, the contract language doesn’t create a “carve out” to deny Javice and Amar advancement of legal fees, the judge concluded. 

“We continue to focus on the main issue of addressing our fraud claims against Ms. Javice and Mr. Amar through the legal process,” Pablo Rodriguez, a bank spokesman, said in an emailed statement.

Javice was charged with fraud by Manhattan federal prosecutors last month. She was also sued by the Securities and Exchange Commission. She has yet to enter a plea in the criminal case, and her lawyers and prosecutors last week asked for the case to be delayed for talks between the two sides. 

McCormick also ordered JPMorgan to cover Amar’s legal fees for the same reasons the bank is on the hook for Javice’s bills. Amar, Frank’s growth and acquisition head, wasn’t named in either the criminal or SEC case.

The bank urged McCormick to deny Javice and Amar’s legal fee requests, noting they’d reaped millions of dollars from the Frank sale that they could use to cover their own defense costs.

McCormick’s ruling likely comes as a relief to Javice, who has run into money problems as she deals with JPMorgan’s fraud allegations.

The entrepreneur moved millions of dollars out of JPMorgan after the bank fired her and accused her of fraud, but then wound up getting caught up in the collapse of Signature Bank. That institution was seized by state regulators in March after a run on the bank threatened its future. The Federal Deposit Insurance Corp. stepped in to insure Signature deposits.

Seized Accounts

Although she was able to move her money before regulators put Signature into receivership, her accounts later were seized by federal prosecutors who charged her with defrauding JPMorgan.

JPMorgan suggested in Delaware court filings in Javice was trying to hide assets in Nevada shell companies she set up. But she countered the government’s seizure of her funds vitiated any such concern.

If Javice is convicted of the fraud charges or she is found liable in JPMorgan’s lawsuit, the bank could seek to recoup any legal fees it advanced to her, said Larry Hamermesh, a retired University of Pennsylvania professor who taught about Delaware corporate law. Those outcomes could mean she no longer meant the standard to be indemnified by her former employer.

“She’ll have to fork over the fees” in that event, Hamermesh said, “if she has the money, that is.”

The case is Javice v. JPMorgan Chase Bank NA, 2022-1179, Delaware Chancery Court (Wilmington).