Founding father of Shark Tank-backed startup Scholly sues his acquirer Sallie Mae

When Chris Grey bought his Shark Tank-backed scholarship search startup Scholly to Sallie Mae in 2023, he thought he had all of it. Now he’s suing the coed mortgage big for wrongful termination and alleging that it’s promoting the information his app collected, which incorporates private information on minors, with out correctly informing customers. 

Grey co-founded the corporate a decade prior with the hope of serving to college students extra simply discover school scholarships that have been going untapped. Inside two years, he nabbed Sharks Daymond John and Lori Greiner as traders after an appearance on the show. 

With the acquisition, Grey turned one of many few Black venture-backed fintech founders to exit their firm, regardless of receiving some blowback that he was “promoting out.” “I feel being one of many first Black tech firms to get acquired by a financial institution, that’s actually a giant achievement,” he said on the time. 

He took a vp position at Sallie Mae and anticipated to settle in properly at his new gig, whereas serving to scale Scholly and making it free to make use of, he mentioned in an unique interview with TechCrunch.

What occurred subsequent is detailed in Grey’s lawsuit towards Sallie Mae in Delaware Superior Courtroom, and in a whistleblower grievance he submitted to the Securities and Change Fee, each of which he filed earlier this month. 

He alleges Sallie Mae laid off his staff, together with his co-founders, after which went again on guarantees that it wouldn’t promote the customers’ information, in response to a TechCrunch assessment of each filings. He claims the corporate fired him a 12 months after the acquisition when he tried to lift issues about information privateness points. Within the lawsuit, Grey is looking for backpay and punitive damages within the swimsuit, plus authorized prices. 

Grey informed TechCrunch that earlier than he agreed to the sale, he believed Sallie Mae can be prohibited from disclosing or promoting personal private details about Scholly clients to 3rd events as a result of it was a federally regulated monetary establishment.  

Now he alleges that his acquirer received round any such rules by placing Scholly right into a subsidiary that’s promoting the information — together with age, gender, race, and different indicators of a person’s monetary want — to 3rd events like universities and advertisers, probably with out college students’ full consciousness.  

“I bought Scholly to a regulated financial institution as a result of I believed it could shield the scholars who trusted us,” Grey informed TechCrunch. “As a substitute, I watched the corporate construct a non-bank subsidiary to do issues the financial institution itself can’t legally do: promote pupil information. That’s not the corporate I assumed I used to be becoming a member of.”  

Sallie Mae denied Grey’s allegations, calling them “with out advantage” and declined to reply TechCrunch’s questions on its information privateness practices. 

“Whereas we don’t touch upon pending litigation, it’s unlucky a former worker is making false accusations about our firm following his departure almost two years in the past. We plan to vigorously defend ourselves towards these claims that are with out advantage or substance,” Rick Castellano, the corporate’s vp of company communications, mentioned in an electronic mail.  

Requested which particular accusations have been “false,” Castellano declined to remark. 

From Alabama to Shark Tank

Grey grew up low-income in Birmingham, Alabama, with a single mom and two siblings. He felt the obstacles to increased schooling have been “actual and speedy” for somebody like him.  

Apart from being costly, he felt he lacked entry to data to assist him make correct selections about the place to go and the best way to afford it, a strain that solely compounded after his mom misplaced her job within the 2008 recession.  

“That have formed how I assumed concerning the scholarship system later,” he recalled, saying he started to view schooling and scholarship as “an issue of entry reasonably than an issue of advantage.”  

As a youngster, when the time got here for him to use for scholarships, he discovered the method fragmented and inefficient, he mentioned. There was no centralized seek for him to search out alternatives, and when he did discover a web site with scholarship choices, there have been hundreds of listings, however no dependable approach to filter to see what he was truly eligible for. To not point out the scams and outdated listings that endured on some websites.  

Nonetheless, he utilized to about 75 scholarships over the course of seven months utilizing public computer systems and the web on the library, and received around $1.3 million in scholarship funding, together with from the Invoice and Melinda Gates Basis and the Coca-Cola Students Basis.  

He studied economics and entrepreneurship at Drexel College and met college students going through a well-recognized roadblock. “College students saved asking for assist discovering scholarships,” he informed TechCrunch. “The funding existed with tons of of hundreds of thousands of {dollars} unclaimed annually, however the search course of was damaged.”  

He began mapping out the eight core standards that decided scholarship eligibility — age, location, main, GPA, race, gender, discipline of research, and monetary want. 

“That turned the inspiration of Scholly’s matching algorithm,” he mentioned.  

Throughout his senior 12 months, Grey, alongside Nick Pirollo and Bryson Alef, whom he met as Coca-Cola Students, formally launched Scholly in 2013. For simply $0.99 a month, college students might use the platform and filter by eligibility standards. “That value saved the enterprise sustainable with out having to promote information or run advertisements,” he mentioned.  

Scholly switched to a freemium mannequin after Grey pitched the concept on Shark Tank. The Sharks clamored over his concept in what turned the “worst combat in Shark Tank historical past,” in accordance to one of the hosts who invested. Scholly grew to five million customers and made greater than $30 million in cumulative income, Grey mentioned. 

In March of 2023, Sallie Mae’s company improvement group reached out to Scholly. The financial institution had simply purchased the scholarship group Nitro Faculty a 12 months prior and was making an attempt to maneuver extra into the scholarship and college-planning house. “It was a pure match,” Grey mentioned, of why the coed mortgage establishment needed Scholly.  

Sallie Mae purchased Scholly in July 2023, introduced Grey and his co-founders on board as staff, and made Grey a vp of product administration. 

Along with promising that it could “make Scholly free for all college students, households, and different customers,” Sallie Mae CEO Jon Witter said in 2023 that the acquisition “permits us to harness and construct on Scholly’s modern know-how to unlock future strategic progress alternatives.” 

Sallie Mae vs. “Sallie” 

For Grey, the canary within the coal mine got here one 12 months after Scholly’s acquisition.  

He alleges within the swimsuit that Sallie Mae laid off the Scholly founding group, together with his co-founders, in July 2024. Round this similar time, Grey claims he heard Sallie Mae executives talk about plans for promoting Scholly person information in conferences.  

Grey alleges executives informed him his place was protected, and that the corporate was simply restructuring. However when he went on to lift additional issues concerning the potential promoting of Scholly information, he claims in his swimsuit he was fired earlier than a scheduled assembly with Witter, the CEO, the place he deliberate to debate these points.  

After his departure, round December 2024, Sallie Mae launched “Sallie.com.” This web site describes itself as an “schooling options firm,” and have become dwelling to the Scholly platform. It’s separate from the web site for Sallie Mae, which is dwelling to the financial institution that makes pupil loans. 

The Sallie.com web site says it’s owned by an entity referred to as SLM Schooling Providers, LLC. Grey contends in his lawsuit and whistleblower grievance that Sallie Mae is utilizing SLM Schooling Providers in an effort to promote the non-public information collected by Scholly, since it isn’t a closely-regulated monetary companies firm just like the Sallie Mae banking arm. 

Sallie.com discloses that it sells the next buyer information in its privateness coverage to 3rd events: title, telephone quantity, electronic mail addresses, age, race, gender, schooling information, and geolocation information. The third events it sells this data to, it says, embody advert networks, instructional establishments, manufacturers, and corporations devoted to reselling client information.  

Sallie Mae additionally pays Sallie “for the referrral of pupil mortgage clients,” according to the Sallie.com “About” web page. 

Grey argues in his complaints that the Sallie.com web site could also be simply confused with the official Sallie Mae web site due to related layouts and “sallie” logos, growing the danger that college students could hand over private information to what they imagine to be a financial institution.  

Grey’s swimsuit goes on to allege that Sallie Mae used Scholly person information to create one thing referred to as Backpack Media in March, which it payments as a “first-to-market schooling media community” that “presents manufacturers environment friendly, scalable entry to extremely fascinating, onerous to succeed in audiences – Gen Z, Gen Alpha, and people concerned of their buying selections,” in response to a Sallie press release.  

Castellano declined to touch upon Backpack Media’s sources for information.

This is able to not be the primary time a Salle Mae-affiliated firm has been accused of misleading or deceptive habits.  

An organization referred to as Navient, which cut up from Sallie Mae in 2014, has confronted restitution orders from the Federal Deposit Insurance coverage Company, Division of Justice, and the Division of Schooling for overcharges. It was sued by the Client Monetary Safety Bureau and reached a $1.85 billion settlement with 39 attorneys normal for over what the attorneys normal described as predatory pupil loans.  

Grey mentioned he knew of those previous authorized points, however that he doesn’t remorse the sale of Scholly because it helped make the platform free for each pupil. Actually, if he mentioned if he might, he would make the identical resolution to promote over again. 

“However I’d additionally increase the identical issues once more,” he mentioned. “As a result of I imagine we must always reside in a system the place an government can communicate up and alter the course of an organization consistent with the regulation and honest enterprise practices.”