First Liberty Building & Loan Ponzi scheme: Receiver reports records in 'shambles'

Newnan firm accused by feds of Ponzi scheme

Federal investigators accuse a Newnan business of defrauding investors in a massive Ponzi scheme. We?re hearing from the man listed in the federal complaint.

NEWNAN, Ga. - The court-appointed receiver overseeing the assets of First Liberty Building & Loan says the financial records of the Newnan-based lender are in disarray as he works to recover funds in what federal regulators call a $140 million Ponzi scheme.

What they're saying:

S. Gregory Hays, appointed by a federal judge earlier this month, filed his first status report in the U.S. District Court for the Northern District of Georgia. Hays detailed efforts to identify missing investor funds, secure real estate and financial assets, and investigate widespread misuse of money that allegedly affected more than 300 investors.

"The records are pretty much in shambles," Hays said during a walkthrough of First Liberty’s shuttered Newnan office. "We’ll be looking at everything to try to understand the story and what happened."

SEC takes over First Liberty

By the numbers:

Since the office officially closed on June 27, Hays and his team have begun securing documents, servers, and electronic files. With company records unreliable, he said the investigation will rely heavily on bank statements.

Among the early findings:

• More than $1.2 million in cash has been frozen in financial accounts.
• Investor funds were used for $2.4 million in credit card payments, $570,000 in political contributions, $335,000 spent on rare coins, and $230,000 on luxury vacations.
• Over $1 million in campaign contributions were made by First Liberty, Frost, or his family — some already returned after pressure from public officials.
• Loan records were incomplete, with indications of interest payments continuing after loans were paid off, and loans being listed that never returned any capital.

Hays said First Liberty continued to pay investor interest on paid-off loans and misrepresented the health of its loan portfolio. "Some of the reports show loans being paid off even though the principal wasn’t repaid," he said.

The company also made charitable donations and used investor funds for political purposes, which Hays says he plans to scrutinize and claw back. He urged political candidates and groups that received Frost-linked donations to return them to a fund created for investor recovery.

First Liberty receivership website

What you can do:

Hays has set up a website — firstlibertyreceivership.com — to update investors and post court filings. A claims process will be implemented in the coming weeks, though investors are being told to begin collecting documentation now.

He is also examining ongoing litigation that may affect the receivership estate, including several foreclosure and replevin actions involving multimillion-dollar loans and equipment leases. Additional efforts to recover assets have been initiated in 24 other federal court districts.

Hays said it’s too early to estimate how long the receivership will take or how much money may be returned to victims, but emphasized that his team is working aggressively to secure and liquidate assets.

Frost family under scrutiny after 'First Liberty' scandal

A Republican National Committee member who represents Georgia says she believes even though they are not named in the lawsuit, three of Frost's family members should be removed from Georgia Republican leadership roles.

"The primary purpose of this first report is to assure the court, investors, and parties in interest that the receiver has begun the challenging process of collecting assets and investigating the affairs and transactions of the receivership entities," the report said.

SEC probes Ponzi scheme allegations

The backstory:

The Securities and Exchange Commission filed a civil suit July 11 against First Liberty and its founder, Edwin Brant Frost IV, accusing them of soliciting funds under the guise of high-return short-term bridge loans. In reality, most loans defaulted and investor money was used to pay previous investors and fund personal expenses — classic signs of a Ponzi scheme, regulators said.

In a statement released through his attorney and shared with FOX 5 Atlanta, Frost said:
"I take full responsibility for my actions and am resolved to spend the rest of my life trying to repay as much as I can to the many people I misled and let down. I will be cooperating with the receiver and federal authorities."

What's next:

Frost has consented to SEC requests for asset freezes and document access but has not admitted wrongdoing.