Federal prosecutors charge First Liberty founder in alleged $140M Ponzi scheme

Prosecutors said in court that the government and defense are working to arrange a hearing in the near future for a change in plea.

“Mr. Frost is accepting responsibility and intending to resolve this.” said Nicholas A. Lotito, Frost’s attorney.

Frost, 68, appeared in court in a dark suit with a pocket square. He gave brief answers to the judge during what amounted to about a 15-minute hearing. The judge ordered a $10,000 supervisory bond, instituted some limits on his travel and ordered Frost not to have contact with potential witnesses or alleged victims.

First Liberty and Frost were deeply embedded in conservative politics, aggressively marketing the firm to a Republican-leaning audience with faith-based appeals casting its business loans as a part of the conservative “patriot economy.”

The business closed suddenly late last June. Days later, the U.S. Securities and Exchange Commission sued First Liberty, alleging the lender operated a Ponzi scheme by using new investor funds to pay earlier investors. A court-appointed receiver has since been working to recover money.

U.S. Attorney Theodore Hertzberg said the investigation is ongoing and there could be other charges. He said Frost is likely to enter a guilty plea in early May. Asked whether Frost was cooperating with authorities, he stopped short of confirming that.

“It doesn’t necessarily mean that Mr. Frost is providing information about other people,” said Hertzberg. “What it does mean is that he is prepared to accept responsibility for his wrongdoing and not contest the charges.”

Credit: First Liberty Building and Loan YouTube via AJC

Credit: First Liberty Building and Loan YouTube via AJC

In a brief phone interview on Thursday, receiver S. Gregory Hays said he expects to file a quarterly update next week that will show he has been able to recover about $5.3 million for jilted investors to date. In a Jan. 30 report, Hays warned much of the money may never be recovered as he traces roughly 48,000 transactions across 19 bank accounts.

More than $300,000 in charitable or political contributions have been returned, according to court records, but that’s a fraction of nearly $1.4 million in campaign donations tied to the Frost family that The Atlanta Journal-Constitution identified — most flowing to GOP candidates and causes.

First Liberty was not a bank and did not hold deposits insured by the Federal Deposit Insurance Corp. The company made loans and sold interests in those loans to investors, advertising them as safe investments offering high returns.

First Liberty’s now-defunct website described company leaders as “authentic followers of Christ” and promoted what it called “creative financing solutions” for businesses shut out by traditional banks.

It also sold what it called “First Liberty Notes,” investment products that promised annual returns ranging from 8% to 13% depending on the amount invested. The minimum investment was $25,000, and the offerings were marketed to accredited investors.

Prosecutors allege Frost used some of the money raised from new investors to pay off old ones. He also spent more than $5 million on personal items, such as more than $2 million on credit card bills, $230,000 on rent on a vacation home in Maine, more than $140,000 on jewelry, including a $20,800 Patek Philippe watch, and hundreds of thousands on political contributions.

“It’s about time,” said Richard Hortman, a Carrollton resident who invested $275,000 in First Liberty notes last year.

“He stole my money,” Hortman said. “We got a partial interest payment one month, and the next month we got another interest payment. And then the walls came crumbling down.”

“He deserves to go to jail,” Hortman said.

Allen Baldwin said he was convinced he was investing with like-minded conservatives and was impressed with Frost’s deep ties to the community. He said he did his “due diligence” as he poured money into the firm, eventually totaling more than $1 million.

“It’s obvious this was no accident,” said Baldwin. “There was a lot of intent behind it.”

He and other jilted investors have expressed frustration about the pace of the investigation.

“We felt blessed God had given us that money. We were going to use it to further his kingdom,” said Thomas Todd, a 77-year-old retiree who said he lost $750,000 in the scheme. “They ruined many families, and they need to be prosecuted for what they did.”

For victims who wondered why it took so long, Hertzberg said the federal case was moving behind the scenes long before charges were announced.

“Although we have not been out front in communicating what’s been going on, we have been involved every step of the way,” he said. “There was no question in our minds that Mr. Frost would be held accountable criminally for his wrongdoing.”

State scrutiny

Frost IV has apologized and urged victims to cooperate with the receiver’s efforts. His son, Brant Frost V, who also worked for First Liberty, is not named in the SEC complaint. But he faces separate scrutiny.

The Georgia Republican Assembly PAC that Frost V led is accused of dozens of violations by the state ethics commission, which alleges the group illegally influenced elections with more than $220,000 in unreported expenditures.

Georgia Secretary of State Brad Raffensperger, a Republican candidate for governor, has also launched a separate investigation into First Liberty.

Credit: Greg Bluestein/AJC

Credit: Greg Bluestein/AJC

He appointed veteran securities fraud attorney Jason Doss to lead the probe and his office has issued subpoenas seeking documents from borrowers and brokers. In early February, it found evidence of another potential scheme connected to First Liberty.

He has also levied steep civil fines against the firm’s leaders, worked with financial institutions to claw back some funds and referred key figures to local prosecutors.

“This is a complex investigation, and victims across our state are hurting,” Raffensperger said in February. “They’ve been robbed of their retirement, and their future is uncertain.”

That month, Raffensperger’s office announced it had barred Frost V from selling securities, fined him $500,000 and referred his case to a district attorney for prosecution.

Days later, Raffensperger’s office announced it announced similar action against a far-right Republican operative who sold First Liberty investments to dozens of investors.

Nathaniel Darnell of Powder Springs, who has served as president of the Georgia Republican Assembly, a conservative insurgency group once allied with the Frost family, was fined $500,000 and barred from selling securities in Georgia. Raffensperger’s office alleged Darnell used religion and shared political views to recruit some of his clients and steered them toward investments in First Liberty.

Frost V has not responded to messages seeking comment over a period of months. Though his attorney, Darnell has denied any wrongdoing.

Then in early April, Bankers Life, a firm that employed Darnell, agreed to repay nearly $6.7 million to more than 40 investors who lost money in First Liberty.

Meanwhile, Frost V has moved forward publicly despite the mounting scrutiny. He was elected to a Coweta County GOP post in August. And records show he was recently licensed as an insurance agent under the name “E.B. Frost.”

Matt Wolper, an attorney for about a dozen families who are Bankers Life clients alleging they were victims of Darnell, called the criminal charge “an important and necessary step to holding Frost IV accountable for his role in the fraud.”

“I know that my clients are paying close attention to these developments,” Wolper said in an email.

‘They fooled me bad’

James McMaster, 93, said he invested more than $1.3 million in First Liberty after hearing about it on conservative radio. A year ago, Frost IV texted him a photo from a ritzy black-tie gala. Now, McMaster said, that image only fuels his anger.

“I want to see him in jail,” McMaster told the AJC in a recent interview. “I don’t wish him any bodily harm. But I do want him put away.”

Credit: Arvin Temkar/AJC

Credit: Arvin Temkar/AJC

Woodstock resident Don Glasser was getting ready to retire when he and his wife went to a local investment seminar to hear advice from an adviser about 401(k) planning and tax strategies for retirement. He wound up investing nearly $1 million into a company with ties to First Liberty.

Now he and his wife have sold a vacation rental and a plot of land in Hilton Head Island, South Carolina, where they had hoped to build a retirement home. And even though Glasser retired two years ago, at 70 years old he is still working, pursuing additional income as an aircraft maintenance consultant.

“They should pay our money back and face the penalty,” he said.

Thomas Todd, a 77-year-old retired electrical worker from Walton County, said he once believed he had a strong “gift of discernment.” Instead, he said, he was taken in by glossy investment sheets, sophisticated marketing and trusted conservative voices who vouched for the company.

“They fooled me bad,” he said.

Asked whether he wants those involved jailed, Todd paused.

“Do they need to be in jail? I really don’t care.”