To find First Liberty’s missing money, he’s starting with computers, files

On Friday, Frost handed over the keys to the firm’s offices to Hays. A federal judge had that day appointed Hays as the receiver of the failed lender. Hays is tasked with managing the affairs of First Liberty and related companies, and the judge ordered a freeze of First Liberty’s assets to try to recoup money for investors.

A receiver is a court-appointed neutral party who steps in to manage a company in financial or legal distress. First Liberty is in both.

At the end of June, First Liberty quietly closed, posting a statement on its website saying it was cooperating with federal authorities.

The company wasn’t a bank, but it lent to small businesses and sold pieces of those loans as safe investments to investors. Authorities allege the loans did not perform as Frost and First Liberty had represented.

The SEC contends First Liberty defrauded investors going back to at least 2021 with false promises of lofty returns, only to use incoming investor funds to repay existing investors.

Frost allegedly made payments to himself and relatives of more than $5 million, and funneled investor funds through a web of businesses. He allegedly used proceeds for credit card payments, a vacation rental in Maine, a nearly $21,000 watch and spent more than $570,000 on political contributions, the SEC alleges.

When Hays went to First Liberty’s offices right off Newnan’s town square, he found a small space with five computers and a disorganized collection of records.

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

“It’s a very small office,” Hays said in an interview with The Atlanta Journal-Constitution. “I removed the computers, I removed the most important records.”

He said he’ll have to return to the location later, “because it’s just a mess down there (with) a lot of really old papers and things from, you know, 10, 15, 20 years ago. So it’s a lot to sort through.”

Hays plans to interview former employees on Tuesday. “We’re just beginning the investigation,” Hays said. “You’ve got a lot of investors that have lost a lot of money. So we’re going to hustle on it.”

On Monday evening, Hays launched a website for investors and others to see court filings and other key documents in the case.

While other lawsuits have been filed against First Liberty, Hays said the receiver order puts a stay on other pending legal actions for now. Because he is stepping into the shoes of management of the company as receiver, he will have an appearance in those cases in the effort to recover money.

“We’re going to be looking at all the money that went out of the company,” whether to buy other assets or that went to family members. But for now, his main focus will be on tens of millions of dollars of outstanding loans made by First Liberty, Hays said.

“We’ve got to review each one,” figuring out which loans were valid “and which ones we can collect on,” he said. “That’s the focus — recovering money.”

First Liberty advertised on conservative media and Frost and his family are significant players in Georgia Republican politics.

Hays is also focused on getting funds back from politicians.

“I had a couple of calls over the weekend from various elected officials that wanted to return money. So that’s a good sign,” Hays said. “It’s an extensive list of politicians that received money.”

On Monday, Secretary of State Brad Raffensperger called on candidates and political committees to return contributions from First Liberty.

“Now is the time for every elected official, candidate or political action committee who received financial support from this entity currently under investigation to stand up and help the victims,” Raffensperger said in a statement released Monday. “Ill-gotten gains do not belong in the State Capitol.”

Frost consented to federal regulators taking over the companies, without admitting or denying the allegations, according to the SEC. Hays called that “pretty rare in these kinds of cases.”

“I’ve done a lot of Ponzi cases in my career and you usually don’t get much cooperation,” he said.

In a statement to the AJC on Friday, Frost asked that investors “allow the receiver time to sort things out and do his best to repair the damage I created.”

Credit: Screenshot

Credit: Screenshot

He added: “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.”

Hays warned that it is a lengthy process “to unlock some of these schemes.”

Through bank records, emails and employee interviews, Hays said, “You’ve got to piece together the story, you know, one piece at a time.”