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Charlie Javice, the founder of a startup company that promised to revolutionize the way college students apply for financial aid, was sentenced Monday to more than seven years in prison for cheating JPMorgan Chase out of $175 million by greatly exaggerating how many students it served.Javice, 33, was convicted in March of duping the banking giant when it bought her company, called Frank, in the summer of 2021. She made false records that made it seem like Frank had over 4 million customers when it had fewer than 300,000.Addressing the court before she was sentenced, Javice, who was in her mid-20s when she founded the company, said she was “haunted that my failure has transformed something meaningful into something infamous.”Sometimes speaking through tears, she said she “made a choice that I will spend my entire life regretting.”Judge Alvin K. Hellerstein largely dismissed arguments by Javice’s lawyer, Ronald Sullivan, that he should be lenient because the negotiations that led to Frank’s sale pitted “a 28-year-old versus 300 investment bankers from the largest bank in the world.”Still, the judge criticized the bank, saying “they have a lot to blame themselves” after failing to do adequate due diligence. He quickly added, though, that he was “punishing her conduct and not JPMorgan’s stupidity.”Javice was among a number of young tech executives who vaulted to fame with supposedly disruptive or transformative companies, only to see them collapse amid questions about whether they had engaged in puffery and fraud while dealing with investors.Her prosecution drew comparisons to the case against Elizabeth Holmes, the founder of a blood testing company, Theranos, that collapsed amid fraud allegations.Javice, who lives in Florida, has been free on $2 million bail since her 2023 arrest. The judge said she could remain free while she appeals the verdict. She was convicted of conspiracy, bank fraud and wire fraud charges. Her lawyers had argued that JPMorgan went after Javice because it had buyer’s remorse.A graduate of the University of Pennsylvania’s Wharton School of Business, Javice founded Frank to launch software that promised to simplify the arduous process of filling out the Free Application for Federal Student Aid, a complex government form used by students to apply for aid for college or graduate school.Frank’s backers included venture capitalist Michael Eisenberg. The company said its offering, akin to online tax preparation software, could help students maximize financial aid while making the application process less painful.The company promoted itself as a way for financially needy students to obtain more aid faster, in return for a few hundred dollars in fees. Javice appeared regularly on cable news programs to boost Frank’s profile, once appearing on Forbes’ “30 Under 30” list before JPMorgan bought the startup in 2021.Sullivan told Hellerstein that his client was very different from Holmes because what she created actually worked, unlike Holmes, “who did not have a real company” and whose product “in fact endangered patients.” Sullivan said the bank rushed its negotiations because it feared another bank would acquire Frank first.A prosecutor, Micah Fergenson, though, said JPMorgan “didn’t get a functioning business” in exchange for its investment. “They acquired a crime scene.”Fergenson said Javice was driven by greed when she saw that she could pocket $29 million from the sale of her company.“Ms. Javice had it dangling in front of her and she lied to get it,” he said.And in seeking a long prison sentence for Javice, prosecutors cited a 2022 text she had sent to a colleague in which she called it “ridiculous” that Holmes got over 11 years in prison in the Theranos case.Prosecutors added that the message was “desperately needed” because of “an alarming trend of founders and executives of small startup companies engaging in fraud, including making misrepresentations about their companies’ core products or services, in order to make their companies attractive targets for investors and/or buyers.” Larry Neumeister, Associated Press
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E-Commerce
Shares of Spotify Technology SA were put on the spot this morning as the Swedish audio-streaming company announced that CEO Daniel Ek will be transitioning out of the role at the end of the year. He will be replaced by two new co-CEOs: Gustav Söderström, Spotifys current copresident and chief product and technology officer, and Alex Norström, copresident and chief business officer. Ek will remain with the company and oversee its long-term strategy and capital allocation, and provide guidance in his new role as chairman of the board. Kicking and streaming Investors may take some time to absorb the news. Spotify stock, listed in the U.S. and trading on the New York Stock Exchange, was down nearly 4% as of 8:30 a.m. during premarket trading. However, shares are up almost 6% over the past month and a whopping 60% year-to-date as Spotify has reported consistent user growth and its first full profitable year in 2024. I always believed that Spotify could play an important role in revolutionizing listening around the world, and with more than 700 million users, weve truly charted a new course bringing creativity to every corner of the globe, Ek said in a company statement. The CEO also announced his departure on Instagram. The 42-year-old Ek cofounded Spotify in 2008 and has been with the company ever since, seeing it grow from a small Swedish startup to become the top music streaming platform in the world, with almost 700 million users worldwide along with 276 million subscribers in 180 markets. More recently, the company has leaned into the burgeoning audiobook segment, rolled out new features like Mix mode, and more. ‘Can’t wait to get started’ With a lot of momentum, Spotifys new CEOs said in a joint statement that theyre confident theyll take the company forward. Weve worked together a very long time and have seen Spotify through many different chapters,” Söderström and Norström said. “Nearly three years ago, when we stepped into our role as co-Presidents, we charged our teams with relentlessly focusing on building the best and most valuable experience available anywhere and that ambition hasnt changed.”
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E-Commerce
Shares of Beyond Meat slumped to a record low on Monday after the maker of plant-based meat launched an exchange offer for convertible bonds to cut more than $800 million in debt. The stock was last down 32.1% at $1.93, after falling as low as $1.23. The company last month posted a revenue drop and a wider-than-expected loss, citing weak U.S. consumer demand. It said it was still facing “an elevated level of uncertainty” and will not provide any full-year estimates. Consumer spending has been affected by economic uncertainty and consumer tastes have been shifting in the plant-based meat market. The company will exchange its $1.15 billion 0% convertible notes due 2027, with up to $202.5 million of new convertible payment-in-kind 7% notes due 2030, along with 326 million shares of its common stock, according to a filing on Monday. Payment-in-kind means Beyond Meat will be able to pay interest with additional debt instead of cash, with the payment-in-kind notes paying interest at a 9.50% annual rate. The exchange offer is meant to sharply reduce leverage and extend maturity to support Beyond Meat’s long-term vision of being a global plant protein company, President and CEO Ethan Brown said in a statement on Monday. The filing showed about 47% of holders of the 2027 notes have already agreed to the exchange offer, while other creditors have until October 28 to accept the offer. Following Beyond Meat’s results, TD Cowen analysts said in an August note that the management and board have recognized the “existential threat facing the business and are taking steps to preserve cash and stabilize sales.” However, they recommended selling the stock, noting that the company’s fragile financial situation and weak demand for meat alternatives create too much risk. Of the nine analysts who cover Beyond Meat, three have a “hold” rating on the stock and six have a “sell” or “strong sell” rating, according to LSEG. Beyond Meat’s stock is down about 50% for the year to date. Additional reporting by Lance Tupper Caroline Valetkevitch, Reuters
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E-Commerce
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