Playing with House Money

Playing with House Money

May 15, 2023

Playing with House Money

By: James Trusty

Just as the walls seemed to be closing in on young entrepreneur Charlie Javice, a bit of
offense has left her opponent, JPMorgan, in an entirely uncomfortable position largely of its own
making. Javice founded a college loan planning entity called Frank, that appeared to be doing so
well that JP Morgan bought it in 2021 for $175 million, purportedly lining Charlie’s pocket to the
tune of about $26 million. Soon, the banking giant began to uncover some apparent puffing—
Frank’s claim of having a customer base of 4.26 million was apparently overstated by about 4
million. Before long, Javice was facing a wire fraud case out of the Southern District of New York
(“SDNY”), SEC action, and a fraud suit filed by JPMorgan in the U.S. District Court of Delaware.
Further, the SDNY folks seized millions of dollars of assets for forfeiture, and things were looking
bleak for the 31-year-old Javice.
Enter the Delaware Court of Chancery, which describes itself as follows:
The Delaware Court of Chancery is widely recognized as the nation’s preeminent forum
for the determination of disputes involving the internal affairs of the thousands upon
thousands of Delaware corporations and other business entities through which a vast
amount of the world’s commercial affairs is conducted. Its unique competence in and
exposure to issues of business law are unmatched.1
Javice brought suit at the Court of Chancery to make the bold claim that, as a JP Morgan employee
since the merger, the company had to pay her legal fees in defending herself. The Chancery Court
agreed, ruling that JPMorgan was also on the hook for the criminal case in SDNY and the ongoing
SEC proceedings. Chancery Court Judge Kathaleen McCormick’s opinion pointed out that the
merger agreement had a carve out for committing fraud but not a carve out from having the
company advance legal fees. In theory, then, JPMorgan will be able to recoup Javice’s legal
expenditures on the back end, but it is far from clear that there will be any unattached funds simply
laying around for J.P Morgan to grab them in the months or years it takes to resolve the cases.
The variables that now affect JPMorgan’s decision-making are now borderline
bewildering. A verdict, plea or settlement in which Javice acknowledges fraud remains quite
valuable to the company. But pursuing the civil case could easily force JPMorgan to burn through
millions of dollars on its own legal expenses as well as those for Javice. How will JPMorgan try
to streamline the discovery process, knowing it is the only one bearing its cost? And, with all
incentives regarding spending or saving suddenly upside down, imagine Javice’s newfound
excitement for endless depositions and numerous expert witnesses. SDNY prosecutors might be
able to seek a stay of the Delaware civil suit, as negating civil discovery and testimony is usually
in the prosecutors’ interest, but it is not clear that the long-arm of Manhattan can reach another
state with the same authority it would enjoy in the local SDNY courthouse. Javice may find herself
seeking some sort of global disposition, but the Chancery Court’s ruling gives her the freedom to
fully fight instead of crumbling under the combined weight of criminal, regulatory, and civil

James Trusty

James Trusty

After 27 years as a prosecutor, James (“Jim”) Trusty brings to Ifrah Law extensive experience in complex, multi-district white collar litigation, especially in matters involving RICO, The Computer Fraud and Abuse Act, and The Money Laundering Control Act of 1986.

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