First Liberty founder pleads guilty in $140M fraud case

The charge carries a maximum sentence of 20 years, though prosecutors recommended a 14 year sentence. May will decide the ultimate punishment at an Aug. 14 hearing.

Although the hearing was in Newnan’s federal courthouse, just blocks from the now shuttered headquarters of First Liberty, there were no alleged victims in the third-floor courtroom. An Atlanta Journal-Constitution reporter was the only person there who was not affiliated with the case or the court.

During a hearing that lasted less than an hour, Frost, 68, acknowledged under oath that he knowingly participated in a scheme that used money from new investors to repay earlier investors while concealing the company’s mounting financial problems.

Dressed in a dark suit with dark-rimmed glasses and flanked by three attorneys, Frost said few words other than to change his plea to guilty and acknowledge questions asked by the judge.

After the hearing, Frost’s attorneys declined to comment.

A far-reaching scheme

The plea closes one chapter in a scandal that reverberated through Georgia conservative circles after First Liberty abruptly shut down operations last June.

Days later, the U.S. Securities and Exchange Commission sued the company and Frost, alleging the lender used new investor money to cover obligations to earlier investors while portraying the business as a conservative, faith-driven alternative to traditional banking, with promises of big returns.

Federal officials have alleged Frost diverted millions of dollars for personal expenses, including luxury purchases, political donations, credit card bills and vacation-home expenses.

First Liberty and the Frost family were deeply embedded in Republican politics in Georgia and across the South. The company marketed itself aggressively to conservative audiences, framing its investments as part of a “patriot economy” and frequently sponsoring GOP events, conservative media personalities and faith-based gatherings.

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

The Atlanta Journal-Constitution previously identified roughly $1.4 million in political contributions tied to Frost, his relatives and affiliated businesses. Federal regulators allege at least $570,000 in investor money was used for political donations.

Court-appointed receiver S. Gregory Hays has spent months trying to recover money for investors, tracing tens of thousands of transactions across a maze of accounts. In recent filings, Hays warned many victims are unlikely to recover most of their losses.

First Liberty was not a federally insured bank. Instead, the company sold investment products known as “First Liberty Notes,” which promised annual returns as high as 13% and were marketed primarily to accredited investors.

Its website promoted company executives as “authentic followers of Christ” and pitched the business as a conservative alternative for investors wary of traditional financial institutions.

Under the plea agreement, Frost admitted that investor money was used to sustain the company’s operations and make payments to earlier investors even as the business faced deepening financial strain.

U.S. Attorney Theodore Hertzberg told The Atlanta Journal-Constitution in April the investigation remains ongoing, and additional charges are possible. Asked if Frost were cooperating with authorities, Hertzberg stopped short of saying so.

Credit: Abbey Cutrer/AJC

Credit: Abbey Cutrer/AJC

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

Frost’s son, Brant Frost V, who also worked for First Liberty, is not named in the SEC complaint and has not been accused by federal authorities of wrongdoing. 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

His office has issued subpoenas seeking documents from borrowers and brokers, 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.

Among them is Frost V, who was fined $500,000 and was barred from selling securities, and Nathaniel Darnell of Powder Springs, a conservative operative who sold First Liberty investments to dozens of investors.

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

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

Meanwhile, victims are still seeking to recover even a fraction of their investments. 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. Many others remain far from whole.

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

“He deserves to go to jail.”