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

When Chris Gray sold his Shark Tank-backed scholarship hunt startup Scholly to Sallie Mae successful 2023, helium thought helium had it all. Now he’s suing the pupil indebtedness elephantine for wrongful termination and alleging that it’s selling the information his app collected, which includes idiosyncratic info connected minors, without decently informing users. 

Gray co-founded the institution a decennary anterior with the anticipation of helping students much easy find assemblage scholarships that were going untapped. Within 2 years, helium nabbed Sharks Daymond John and Lori Greiner arsenic investors aft an appearance connected the show. 

With the acquisition, Gray became 1 of the fewer Black venture-backed fintech founders to exit their company, contempt receiving immoderate blowback that helium was “selling out.” “I deliberation being 1 of the archetypal Black tech companies to get acquired by a bank, that’s truly a large achievement,” helium said astatine the time. 

He took a vice president relation astatine Sallie Mae and expected to settee successful nicely astatine his caller gig, portion helping standard Scholly and making it escaped to use, helium said successful an exclusive interrogation with TechCrunch.

What happened adjacent is elaborate successful Gray’s lawsuit against Sallie Mae successful Delaware Superior Court, and successful a whistleblower ailment helium submitted to the Securities and Exchange Commission, some of which helium filed earlier this month. 

He alleges Sallie Mae laid disconnected his employees, including his co-founders, and past went backmost connected promises that it wouldn’t merchantability the users’ data, according to a TechCrunch reappraisal of some filings. He claims the institution fired him a twelvemonth aft the acquisition erstwhile helium tried to rise concerns astir information privateness issues. In the lawsuit, Gray is seeking backpay and punitive damages successful the suit, positive ineligible costs. 

Gray told TechCrunch that earlier helium agreed to the sale, helium believed Sallie Mae would beryllium prohibited from disclosing oregon selling non-public idiosyncratic accusation astir Scholly customers to 3rd parties due to the fact that it was a federally regulated fiscal institution.  

Now helium alleges that his acquirer got astir immoderate specified regulations by putting Scholly into a subsidiary that is selling the information — including age, gender, race, and different indicators of an individual’s fiscal request — to 3rd parties similar universities and advertisers, perchance without students’ afloat awareness.  

“I sold Scholly to a regulated slope due to the fact that I believed it would support the students who trusted us,” Gray told TechCrunch. “Instead, I watched the institution physique a non-bank subsidiary to bash things the slope itself can’t legally do: merchantability pupil data. That’s not the institution I thought I was joining.”  

Sallie Mae denied Gray’s allegations, calling them “without merit” and declined to reply TechCrunch’s questions astir its information privateness practices. 

“While we don’t remark connected pending litigation, it’s unfortunate a erstwhile worker is making mendacious accusations astir our institution pursuing his departure astir 2 years ago. We program to vigorously support ourselves against these claims which are without merit oregon substance,” Rick Castellano, the company’s vice president of firm communications, said successful an email.  

Asked which circumstantial accusations were “false,” Castellano declined to comment. 

From Alabama to Shark Tank

Gray grew up low-income successful Birmingham, Alabama, with a azygous parent and 2 siblings. He felt the barriers to higher acquisition were “real and immediate” for idiosyncratic similar him.  

Aside from being expensive, helium felt helium lacked entree to accusation to assistance him marque due decisions astir wherever to spell and however to spend it, a unit that lone compounded aft his parent mislaid her occupation successful the 2008 recession.  

“That acquisition shaped however I thought astir the assistance strategy later,” helium recalled, saying helium began to presumption acquisition and assistance arsenic “a occupation of entree alternatively than a occupation of merit.”  

As a teenager, erstwhile the clip came for him to use for scholarships, helium recovered the process fragmented and inefficient, helium said. There was nary centralized hunt for him to find opportunities, and erstwhile helium did find a website with assistance options, determination were thousands of listings, but nary reliable mode to filter to spot what helium was really eligible for. Not to notation the scams and outdated listings that persisted connected immoderate sites.  

Still, helium applied to astir 75 scholarships implicit the people of 7 months utilizing nationalist computers and the net astatine the library, and won around $1.3 million successful assistance funding, including from the Bill and Melinda Gates Foundation and the Coca-Cola Scholars Foundation.  

He studied economics and entrepreneurship astatine Drexel University and met students facing a acquainted roadblock. “Students kept asking for assistance uncovering scholarships,” helium told TechCrunch. “The backing existed with hundreds of millions of dollars unclaimed each year, but the hunt process was broken.”  

He started mapping retired the 8 halfway criteria that determined assistance eligibility — age, location, major, GPA, race, gender, tract of study, and fiscal need. 

“That became the instauration of Scholly’s matching algorithm,” helium said.  

During his elder year, Gray, alongside Nick Pirollo and Bryson Alef, whom helium met arsenic Coca-Cola Scholars, officially launched Scholly successful 2013. For conscionable $0.99 a month, students could usage the level and filter by eligibility criteria. “That terms kept the concern sustainable without having to merchantability information oregon tally ads,” helium said.  

Scholly switched to a freemium exemplary aft Gray pitched the thought connected Shark Tank. The Sharks clamored implicit his thought successful what became the “worst combat successful Shark Tank history,” according to 1 of the hosts who invested. Scholly grew to 5 cardinal users and made much than $30 cardinal successful cumulative revenue, Gray said. 

In March of 2023, Sallie Mae’s firm improvement squad reached retired to Scholly. The slope had conscionable bought the assistance enactment Nitro College a twelvemonth anterior and was trying to determination much into the assistance and college-planning space. “It was a earthy fit,” Gray said, of wherefore the pupil indebtedness instauration wanted Scholly.  

Sallie Mae bought Scholly successful July 2023, brought Gray and his co-founders connected committee arsenic employees, and made Gray a vice president of merchandise management. 

In summation to promising that it would “make Scholly escaped for each students, families, and different users,” Sallie Mae CEO Jon Witter said successful 2023 that the acquisition “allows america to harness and physique connected Scholly’s innovative exertion to unlock aboriginal strategical maturation opportunities.” 

Sallie Mae vs. “Sallie” 

For Gray, the canary successful the ember excavation came 1 twelvemonth aft Scholly’s acquisition.  

He alleges successful the suit that Sallie Mae laid disconnected the Scholly founding team, including his co-founders, successful July 2024. Around this aforesaid time, Gray claims helium heard Sallie Mae executives sermon plans for selling Scholly idiosyncratic information successful meetings.  

Gray alleges executives told him his presumption was safe, and that the institution was conscionable restructuring. But erstwhile helium went connected to rise further concerns astir the imaginable selling of Scholly data, helium claims successful his suit helium was fired earlier a scheduled gathering with Witter, the CEO, wherever helium planned to sermon those issues.  

After his departure, astir December 2024, Sallie Mae launched “Sallie.com.” This website describes itself arsenic an “education solutions company,” and became location to the Scholly platform. It is abstracted from the website for Sallie Mae, which is location to the slope that makes pupil loans. 

The Sallie.com website says it’s owned by an entity called SLM Education Services, LLC. Gray contends successful his suit and whistleblower ailment that Sallie Mae is utilizing SLM Education Services successful bid to merchantability the idiosyncratic information collected by Scholly, since it is not a closely-regulated fiscal services institution similar the Sallie Mae banking arm. 

Sallie.com discloses that it sells the pursuing lawsuit information successful its privateness argumentation to 3rd parties: name, telephone number, email addresses, age, race, gender, acquisition records, and geolocation data. The 3rd parties it sells this accusation to, it says, see advertisement networks, acquisition institutions, brands, and companies dedicated to reselling user data.  

Sallie Mae besides pays Sallie “for the referrral of pupil indebtedness customers,” according to the Sallie.com “About” page. 

Gray argues successful his complaints that the Sallie.com website whitethorn beryllium easy confused with the authoritative Sallie Mae website due to the fact that of akin layouts and “sallie” logos, expanding the hazard that students whitethorn manus implicit idiosyncratic information to what they judge to beryllium a bank.  

Gray’s suit goes connected to allege that Sallie Mae utilized Scholly idiosyncratic information to make thing called Backpack Media successful March, which it bills arsenic a “first-to-market acquisition media network” that “offers brands efficient, scalable entree to highly desirable, hard to scope audiences – Gen Z, Gen Alpha, and those progressive successful their purchasing decisions,” according to a Sallie property release.  

Castellano declined to remark connected Backpack Media’s sources for data.

This would not beryllium the archetypal clip a Salle Mae-affiliated institution has been accused of deceptive oregon misleading behavior.  

A institution called Navient, which divided from Sallie Mae successful 2014, has faced restitution orders from the Federal Deposit Insurance Corporation, Department of Justice, and the Department of Education for overcharges. It was sued by the Consumer Financial Protection Bureau and reached a $1.85 cardinal settlement with 39 attorneys wide for implicit what the attorneys wide described arsenic predatory pupil loans.  

Gray said helium knew of these past ineligible issues, but that helium doesn’t regret the merchantability of Scholly arsenic it helped marque the level escaped for each student. In fact, if helium said if helium could, helium would marque the aforesaid determination to merchantability each implicit again. 

“But I’d also raise the aforesaid concerns again,” helium said. “Because I judge we should unrecorded successful a strategy wherever an enforcement tin talk up and alteration the people of a institution successful enactment with the instrumentality and just concern practices.”