SEC charges Lender for large-scale Ponzi Scheme

The U.S. Securities and Exchange Commission (SEC) has charged First Liberty Building & Loan, a now-defunct lending company based in Newnan, Georgia, and its founder, Edwin Brant Frost IV, with orchestrating a large-scale Ponzi scheme. The scheme allegedly defrauded approximately 300 investors out of at least $140 million over more than a decade.

• Company Involved: First Liberty Building & Loan, LLC

• Founder/Owner: Edwin Brant Frost IV

• Amount Defrauded: At least $140 million

• Number of Investors: About 300

• Period: 2014 to June 2025

• Location: Newnan, Georgia

Nature of the Scheme

• Investors were offered promissory notes and loan participation agreements with promised returns of up to 18%. They were told their money would be used to fund short-term, high-interest bridge loans to businesses.

• Contrary to these claims, most of the loans either failed to perform or defaulted.

• Since at least 2021, the operation became a Ponzi scheme—using new investors' money to pay earlier investors.

• Frost reportedly used millions of dollars in investor funds for personal expenses, including:

  • Over $2.4 million in credit card payments

  • $335,000 to a rare coin dealer

  • $230,000 on family vacations

  • Over $570,000 in political donations

  • $160,000 on jewelry

  • $320,000 for vacation home rentals

Legal Action and Immediate Impact

• The SEC has sought an asset freeze and appointment of a receiver, along with other emergency measures.

• The complaint, filed in federal court, alleges violations of federal securities laws and names five entities controlled by Frost as relief defendants.

• Without admitting or denying the charges, Frost and other defendants have consented to the SEC’s requests for emergency relief; financial penalties are pending court determination.

• Individual investor losses have averaged around $500,000.

SEC Warnings and Public Statements

SEC officials highlighted that the promise of high, consistent returns on investments should be a red flag for investors. The agency reiterated prior warnings against schemes that lure victims with offers of unusually generous profits.

Company Status

First Liberty ceased operations in June 2025, suspending all investments and payments and has since been unresponsive to communications. The company indicated via a website notice that it is working towards an “orderly wind-up,” and its assets are now subject to federal oversight.

How should legit alternatove business lenders handle SEC's post-fraud overreach?

This case will complicate alternative business lenders' work for at least two years. They'll need to address the fraud's impact when meeting potential partners or explaining bridge loans. The SEC's warnings about high returns will make legitimate high-yield lending appear suspicious to inexperienced investors.

• Intensified Scrutiny on Promised Returns and Financial Models The SEC's clear warning that "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" is a direct message to the market. First Liberty enticed investors with promises of 8% to 18% annual returns on promissory notes and loan participation agreements. The revelation that approximately 80% of investor payments since 2021 were sourced from new investor funds, rather than legitimate business operations, will compel regulators to cast a much colder eye on any lending operation projecting unusually high, consistent returns.

  • Proactive Transparency in Financial Projections: Legitimate lenders must now go beyond mere disclosure; they need to proactively demonstrate the verifiable sustainability of their financial models. This means providing granular detail on the underlying asset performance, default rates, and realistic growth projections that are not predicated on perpetual new investor capital.

  • Robust Underwriting and Portfolio Management Proof: The SEC alleges that First Liberty's loans mostly went sour, despite assurances of low default risk and repayment mechanisms from Small Business Administration (SBA) or other lenders. This necessitates that legitimate lenders showcase a strong, demonstrable track record of effective underwriting and active portfolio management, proving that their returns are generated from healthy, performing loan books, not merely the influx of fresh capital.

  • Independent Validation and Stress Testing: To counteract the "red flag" perception associated with attractive returns, lenders should consider third-party validation of their financial projections and stress-testing of their portfolios against various economic scenarios. This provides an external, unbiased assessment that can significantly bolster investor and regulatory confidence in the legitimate nature of the yield being offered.

• Heightened Focus on Fund Misappropriation and Corporate Governance Edwin Brant Frost IV, First Liberty's founder, is accused of directly siphoning millions from investor funds for lavish personal expenses, including $2.4 million in credit card payments, $335,000 on rare coins, $230,000 on family vacations, $140,000 on jewelry, and $570,000 in political donations. This egregious misuse of capital underscores a likely increase in regulatory scrutiny on how funds are managed and allocated within lending entities.

  • Ironclad Segregation of Duties and Internal Controls: For legitimate lenders, the emphasis will be on demonstrating impeccable internal controls and strict segregation of duties to prevent any unauthorized access or misappropriation of investor funds. This includes regular, independent audits of all financial transactions and robust compliance frameworks.

  • Transparent Capital Deployment and Use-of-Proceeds Reporting: Lenders should prepare for deeper dives into their capital deployment strategies. This means providing crystal-clear, auditable reporting on the use of proceeds from every investment round, demonstrating that capital is being deployed strictly for its stated purpose – legitimate lending operations – and not for personal enrichment or undisclosed ventures.

  • Strong, Independent Board Oversight: The First Liberty case highlights the vulnerability when control is concentrated. Establishing or strengthening an independent board of directors or advisory committee can provide an additional layer of oversight and accountability, assuring regulators and investors that robust governance mechanisms are in place to prevent executive malfeasance.

• Increased Due Diligence Requirements for Investors and the Need for Enhanced Investor Education George, a 72-year-old victim who lost over $1 million with First Liberty, was drawn in by the promised 13% return and trusting endorsements from a conservative talk radio program. He even met with the company’s director of compliance, Jayme Sickert, who leveraged shared spiritual connections. Despite these interactions, the scheme was a fraud. This outcome will undoubtedly prompt the SEC and other regulators to push for greater investor awareness and potentially stricter requirements for investor suitability.

  • Proactive Disclosure of Risks and Suitability Assessments: Legitimate lenders must redouble efforts to ensure potential investors fully comprehend the risks involved, not just the potential returns. This means going beyond standard disclosures to actively engage in suitability assessments, ensuring that the investment genuinely aligns with the investor's financial sophistication, risk tolerance, and investment goals.

  • Providing Accessible, Verifiable Information: The fact that First Liberty operated under the guise of a "Patriot economy" and leveraged trusted media personalities suggests that legitimate lenders should provide easily accessible and verifiable information that is independent of marketing narratives. This includes detailed financial statements, third-party ratings (if applicable), and clear legal documentation that is readily understandable.

  • Empowering Investors with Resources: Rather than just complying with disclosure rules, forward-thinking lenders should consider providing educational resources to potential investors about how to conduct due diligence on any investment. This demonstrates a commitment to investor protection that goes beyond the immediate transaction, fostering long-term trust and differentiating legitimate operations from fraudulent ones.

For legitimate lenders, this increased SEC scrutiny is not merely a compliance burden but an opportunity to differentiate themselves through robust governance, irrefutable financial transparency, and a steadfast commitment to investor protection. By embracing these principles, alternative lenders can navigate this heightened regulatory climate, build deeper trust, and ultimately strengthen their proposition for capital partners and institutional investors seeking responsible and reliable growth.

1-Minute Video: What Services Does Cobalt Intelligence offer?

What Makes Cobalt Intelligence Different?

1. Real-time data vs. cached competitors: Minutes-fresh information vs. weeks-old data
2. Direct state database integration: No middleman data degradation
3. REST API implementation: Less than one week deployment
4. Comprehensive Verification Ecosystem
- Secretary of State verification (business entity status)
- TIN Verification (tax ID validation)
- UCC Filing data (lien discovery)
- Contractor License verification (regulatory compliance)

For alternative lenders operating on thin margins with regulatory pressure, this technology represents a competitive necessity rather than a nice-to-have enhancement.

Schedule a FREE demo call

Headlines You Don’t Want to Miss

Pagaya Signs New Forward Flow Agreement with Castlelake to Purchase Up to $2.5 Billion in Personal Loans

Pagaya Technologies, a global fintech company specializing in AI-driven lending solutions, has announced a significant expansion of its partnership with Castlelake, a major alternative investment firm. The new agreement enables Castlelake to purchase up to $2.5 billion in personal loan assets from Pagaya over a 16-month period—doubling the size of their previous $1 billion partnership established in 2024.

US CFPB reaches settlement with FirstCash for alleged Military Lending Act violations

The Consumer Financial Protection Bureau (CFPB) has reached a settlement with FirstCash and its subsidiaries over alleged violations of the Military Lending Act, which protects servicemembers from predatory lending practices. Under the terms of the settlement, FirstCash will provide between $5 and $7 million in redress to harmed military borrowers and their families, pay a $4 million fine, and introduce new lending products compliant with the Act.

Capital One to Wind Down Discover's Home Equity Lending Business Following Acquisition Review

Capital One has announced it will wind down the home equity lending business it acquired with Discover, following a strategic review after their $35.3 billion merger closed in May 2025. The company will stop accepting new home equity and refinance applications but will continue servicing existing loans and processing current applications as it supports employees and customers through this transition.