A prominent Georgia Republican was running a Ponzi scheme that defrauded 300 investors of at least $140m, federal officials alleged in a complaint filed Thursday.
The civil lawsuit by the US Securities and Exchange Commission (SEC) said First Liberty Building and Loan, controlled by Brant Frost IV, lied to investors about its business of making high-interest loans to companies. Instead, investigators said, it raised more money to repay earlier investors.
Frost is alleged to have taken more than $19m of investor funds for himself, his family and affiliated companies even as the business was going broke, spending $160,000 on jewelry and $335,000 with a rare coin dealer. Frost is also said to have spent $320,000 to rent a vacation home over multiple years in Kennebunkport, Maine, the town where the family of late president George HW Bush famously spent summers.
The SEC said Frost kept writing checks even after the commission began its investigation.
First Liberty said in June that it would stop making loans and paying interest and principal to investors in those loans. The company said it was not answering phone calls or emails.
First Liberty has not responded to an email seeking comment, and no one was present at its office on Thursday evening in Newnan, a suburb south-west of Atlanta. A lawyer who acts as the company’s registered agent for corporate purposes said earlier that he had no information.
The collapse rocked the religious and political networks that the business drew investors from. It also could have ramifications in state Republican politics, cutting off funding to the far-right candidates that Frost and his family have favored. Investigators said Frost spent $570,000 from investor funds on political contributions.
The SEC said the business had only $2.67m in cash as of 30 May, although regulators are also seeking to claw back money from Frost and associated companies. With 300 investors out $140m, that means the average investor put in nearly $500,000.
First Liberty said it made loans to companies that needed cash while they waited for more conventional loans from the US Small Business Administration (SBA). It charged high rates of interest – 18% on some loans, according to a document obtained by the Associated Press. First Liberty promised investors equally high rates of return – 16% on the 18% loans.
In recent months, the business advertised heavily on conservative radio shows promising “Wall Street returns for Main Street investors”.
“The promise of a high rate of return on an investment is a red flag that should make all potential investors think twice or maybe even three times before investing their money,” Justin C Jeffries, associate director of enforcement for the SEC’s Atlanta regional office, said in a statement.
The company has represented that it is “cooperating with federal authorities as part of an effort to accomplish an orderly wind-up of the business”. The SEC said Frost and his companies agreed to the SEC’s enforcement actions “with monetary remedies to be determined by the court at a later date”.
While the SEC says there were loans to companies, as many as 90% of those companies have defaulted. By 2021, the company was running as a Ponzi scheme, the complaint said, even as Frost withdrew increasing amounts of money.
The business is being investigated by the Georgia secretary of state for possible violations of securities law, said Robert Sinners, a spokesperson for the office.
A 2023 document obtained by the AP is titled as a “promissory note”, and Sinners said anyone issuing promissory notes is supposed to be registered with Georgia securities officials.
Sinners encouraged any victims to contact the state securities division.
Federal prosecutors have declined to comment on whether they are considering criminal charges. Sometimes both an SEC civil case and a federal criminal case are filed over investment frauds.
Frost has been an important player in Georgia politics since 1988, when he coordinated televangelist Pat Robertson’s Republican presidential bid in the state. His son, Brant Frost V, is chairperson of the Coweta county Republican party, where the company is based – and is a former second vice-chairperson of the state Republican party. Daughter Katie Frost is Republican chairperson of the third congressional district, which includes Coweta county and other areas south-west of Atlanta.
At June’s state Republican convention, Katie chaired a nominating committee that recommended delegates re-elect state party chairperson Josh McKoon. Delegates followed that recommendation, rejecting a number of insurgent candidates.