SEC Charges California Investment Adviser with Fraud

Posted on August 16th, 2019 at 3:00 PM
SEC Charges California Investment Adviser with Fraud

From the Desk of Jim Eccleston at Eccleston Law LLC:

The Securities and Exchange Commission ("SEC") charged California investment adviser Stuart Frost, and his investment advisory firm Frost Management Company, LLC, with fraud and breach of fiduciary duties for charging over $14 million in undisclosed and excessive incubator fees to start-up companies in which their advisory clients invested.

According to the SEC Litigation Release No. 24560, Frost served as investment adviser to five private venture capital funds and raised almost $63 million for the funds between 2012 and 2016. Frost then invested those funds in a portfolio of start-up companies that were incubated by Frost Data Capital, LLC, another Frost-owned company, using the so-called "Frost incubator model." The SEC alleged that a significant portion of the incubator fees was used to cover Frost Data Capital's overhead and to pay Frost's exorbitant salary and extravagant personal expenses, including a personal chef, a housekeeper, an archery range, beach club membership, a boat, and luxury cars.

Frost and his firm violated their fiduciary duties as investment advisers by failing to disclose the existence of the incubator fees or misleadingly representing that the incubator fees would be charged on a case-by-case basis and that the charges were at or below market rate for the services. The excessive payment by the start-up companies of over $14 million in fees weakened their financial condition and prospects for success, which, in turn, harmed the funds' investments in those companies, according to the Release. The SEC also alleges that Frost and Frost Management Company charged two of the funds' undisclosed management fees and charged another fund unearned management fees.

The attorneys of Eccleston Law LLC represent investors and advisors nationwide in securities and employment matters. The securities lawyers at Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities FraudCompliance ProtectionBreach of Fiduciary DutyFINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

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I just received this letter from the CFP Board. Thank you, Thank you, THANK YOU!

David Y


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