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

When Chris Grey offered 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 scholar mortgage large for wrongful termination and alleging that it’s promoting the info 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 faculty scholarships that had been going untapped. Inside two years, he nabbed Sharks Daymond John and Lori Greiner as buyers after an appearance on the show. 

With the acquisition, Grey grew to become 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 corporations to get acquired by a financial institution, that’s actually a giant achievement,” he said on the time. 

He took a vice chairman function 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 stated in an unique interview with TechCrunch.

What occurred subsequent is detailed in Grey’s lawsuit towards Sallie Mae in Delaware Superior Court docket, and in a whistleblower grievance he submitted to the Securities and Trade 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 line with a TechCrunch evaluate 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 in search of backpay and punitive damages within the go well with, plus authorized prices. 

Grey advised TechCrunch that earlier than he agreed to the sale, he believed Sallie Mae could be prohibited from disclosing or promoting private private details about Scholly prospects 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 info — together with age, gender, race, and different indicators of a person’s monetary want — to 3rd events like universities and advertisers, presumably with out college students’ full consciousness.  

“I offered Scholly to a regulated financial institution as a result of I believed it could shield the scholars who trusted us,” Grey advised 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 scholar 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 benefit” 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 benefit or substance,” Rick Castellano, the corporate’s vice chairman of company communications, stated in an electronic mail.  

Requested which particular accusations had 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 limitations to larger schooling had been “actual and speedy” for somebody like him.  

Apart from being costly, he felt he lacked entry to info to assist him make correct selections about the place to go and how you can 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 quite than an issue of benefit.”  

As a young person, when the time got here for him to use for scholarships, he discovered the method fragmented and inefficient, he stated. 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 method to filter to see what he was truly eligible for. To not point out the scams and outdated listings that persevered 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 gained 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 dealing with a well-recognized roadblock. “College students stored asking for assist discovering scholarships,” he advised TechCrunch. “The funding existed with tons of of tens of millions of {dollars} unclaimed every year, 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 examine, and monetary want. 

“That grew to become the muse of Scholly’s matching algorithm,” he stated.  

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 stored the enterprise sustainable with out having to promote information or run advertisements,” he stated.  

Scholly switched to a freemium mannequin after Grey pitched the thought on Shark Tank. The Sharks clamored over his thought in what grew to become 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 stated. 

In March of 2023, Sallie Mae’s company growth staff reached out to Scholly. The financial institution had simply purchased the scholarship group Nitro School a 12 months prior and was attempting to maneuver extra into the scholarship and college-planning house. “It was a pure match,” Grey stated, of why the scholar mortgage establishment wished Scholly.  

Sallie Mae purchased Scholly in July 2023, introduced Grey and his co-founders on board as staff, and made Grey a vice chairman 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 development 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 go well with that Sallie Mae laid off the Scholly founding staff, together with his co-founders, in July 2024. Round this identical time, Grey claims he heard Sallie Mae executives talk about plans for promoting Scholly person information in conferences.  

Grey alleges executives advised him his place was secure, 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 go well with 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 house to the Scholly platform. It’s separate from the web site for Sallie Mae, which is house to the financial institution that makes scholar 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 so as 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: identify, cellphone quantity, electronic mail addresses, age, race, gender, schooling data, and geolocation information. The third events it sells this info to, it says, embrace advert networks, instructional establishments, manufacturers, and corporations devoted to reselling shopper information.  

Sallie Mae additionally pays Sallie “for the referrral of scholar mortgage prospects,” 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 comparable 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 go well with 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, arduous to succeed in audiences – Gen Z, Gen Alpha, and people concerned of their buying selections,” in line with 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 conduct.  

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 basic for over what the attorneys basic described as predatory scholar loans.  

Grey stated 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 scholar. In reality, if he stated if he might, he would make the identical determination to promote once more. 

“However I’d additionally increase the identical issues once more,” he stated. “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 truthful enterprise practices.”