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 scholar mortgage big for wrongful termination and alleging that it’s promoting the information his app collected, which incorporates private data 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 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 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 firms to get acquired by a financial institution, that’s actually a giant achievement,” he said on the time.

He took a vice chairman 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 in opposition to Sallie Mae in Delaware Superior Courtroom, and in a whistleblower grievance he submitted to the Securities and Alternate Fee, each of which he filed earlier this month.

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

Grey instructed TechCrunch that earlier than he agreed to the sale, he believed Sallie Mae can 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 laws 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 instructed 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 believed 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 practically two years in the past. We plan to vigorously defend ourselves in opposition to these claims that are with out benefit or substance,” Rick Castellano, the corporate’s vice chairman of company communications, mentioned in an e 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 limitations to increased training have been “actual and instant” for somebody like him.

Except for 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 believed in regards to the scholarship system later,” he recalled, saying he started to view training and scholarship as “an issue of entry moderately than an issue of benefit.”

As a teen, 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 option to filter to see what he was really 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 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 dealing with a well-known roadblock. “College students saved asking for assist discovering scholarships,” he instructed TechCrunch. “The funding existed with lots 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 grew to become 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 worth 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 thought on Shark Tank. The sharks clamored over his concept in what grew to become the “worst struggle 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 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 mentioned, of why the scholar mortgage establishment needed Scholly.

Sallie Mae purchased Scholly in July 2023, introduced Grey and his co-founders on board as workers, 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 progressive 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 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 instructed him his place was secure, and that the corporate was simply restructuring. However when he went on to boost additional issues in regards to the doable 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 “training options firm,” and have become residence to the Scholly platform. It’s separate from the web site for Sallie Mae, which is residence to the financial institution that makes scholar loans.

The Sallie.com web site says it’s owned by an entity known as SLM Training Providers, LLC. Grey contends in his lawsuit and whistleblower grievance that Sallie Mae is utilizing SLM Training Providers with the intention to promote the private information collected by Scholly, since it isn’t a intently 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, telephone quantity, e mail addresses, age, race, gender, training data, and geolocation information. The third events it sells this info to, it says, embody 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 chance that college students might 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 known as Backpack Media in March, which it payments as a “first-to-market training media community” that “affords 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 accordance with a Sallie press release.

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

This might not be the primary time a Salle Mae-affiliated firm has been accused of misleading or deceptive conduct.

An organization known 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 Training for overcharges. It was sued by the Shopper 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 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 scholar. In actual fact, he mentioned if he might, he would make the identical resolution to promote another time.

“However I’d additionally increase the identical issues once more,” he mentioned. “As a result of I imagine we must always stay in a system the place an govt can converse up and alter the course of an organization in keeping with the legislation and truthful enterprise practices.”