Ariz., N.Y. suits say investors got duped

Last year, an Arizona man sent half a million dollars to an investment firm run by Chattanooga accountant Jonathan Frost with the understanding that within one month he would receive the money back — plus 20%, according to a recent lawsuit filed in Arizona.

In early August, a New York moneylender paid Frost and business partner Paul Croft’s accounting firm $5 million with the understanding that it would eventually receive more than $7 million, according to a recent lawsuit filed in New York.

The defendants promptly defaulted on those agreements, according to Brian Dunigan and Redstone Advance, two of the latest to file suit against the embattled businessmen.

Neither Frost nor Croft responded to emailed questions about the lawsuits, which name both men and several firms with which they had ties as defendants.

But suspicions of fraud among their investors have swelled since September, when the Chattanooga accounting firm Croft & Frost abruptly laid off all its staff and management at their Chicago green energy firm, Rhino Onward International, resigned after months of alleged nonpayment. In an early October video call, the former CEO of that firm invited investors to band together with him and other former managers to recoup their losses and seek justice.

The state of that collective effort remains unclear; the CEO, Brian Kawamura, did not respond to a phone call seeking comment. But whatever its status, the new lawsuits are on legal tracks of their own.

In separate October lawsuits, two East Coast moneylenders accused Frost, Croft and firms to which they have ties of defaulting on loans. Those and the two newer complaints filed by Dunigan and Redstone Advance echo the accounts of many of Frost’s financial backers, who in

recent weeks have, in interviews or in public complaints, said they sent money to Frost under what seemed to be highly favorable terms and now fear it has vanished.

‘SWINDLED’

Dunigan’s lawsuit, filed Nov. 2 in Arizona’s Maricopa County, described four loans he made to Frost between November 2021 and September 2022.

One was repaid a few weeks late. As for the other three, Dunigan alleges Frost strung him along with lies and misrepresentations, intermingled money between ostensibly separate firms and ultimately defrauded him out of more than $1.5 million.

“This is a case about an investor-trustee relying on the averments of investment professionals, but ultimately being swindled, due to misleading and false representations, wrongful withholding of information and concealment of the true nature of defendants’ businesses,” Dunigan’s complaint said.

Frost is registered as a leader of many limited liability companies in the state of Tennessee. Dunigan first learned of one of them, the Well Fund, through a friend who’d been putting money for years in various funds run by Frost. The Well Fund at the time primarily invested in Tennessee real estate ventures, according to the lawsuit.

Dunigan understood the funds had always made agreedupon payments on time, the suit said.

And on Nov. 19, 2021, he loaned $300,000 to the Well Fund — though his suit said he did not know for what specific purpose because Frost, citing a confidentiality agreement, declined to reveal it.

Later, the suit said, Frost would tell Dunigan the money was for a hydrogen plant project. Dunigan said he would not have invested in the startup if he had known more about it and alleged Frost and his fellow defendant didn’t want potential investors to probe because they might learn Croft and Frost had no experience in hydrogen power generation.

Still, the terms of the agreement appeared lucrative for Dunigan. A copy of it included in his lawsuit described an arrangement in which he would more than double his money in one year.

Dunigan’s $300,000, the agreement said, would be paid back in November 2022. In the intervening year, Dunigan would receive a 7% annual interest rate, doled out monthly, the contract said, and he would get an additional $300,000 distribution on top of that.

About three months after making the initial loan — a period in which Dunigan said he did receive the monthly interest payments — the Arizona investor discussed another potential opportunity with Frost, who according to the suit said the second batch of money would go toward real estate investments and small business loans.

The resulting contract, dated Feb. 4, 2022, stipulated that if Dunigan made an additional $300,000 loan, he would be repaid that amount by March 15, 2027, with 20% annual interest paid out monthly. Again, Dunigan said he wired the money.

By mid-April, Dunigan was preparing a third loan. Its terms, outlined in a copy of an April 16, 2022, agreement included in the lawsuit, once again seemed quite favorable to Dunigan. The recipient was Scorpio Ref, another Frostmanaged investment company, and Dunigan wired $200,000. He was promised his money back — plus 15% interest — in less than four months.

‘ALL BUT DONE’

Though the April loan was the third Dunigan had made to a Frost entity, it was the first in which full repayment was due.

That repayment did not take place as agreed upon by July 31, 2022. But it did come through a few weeks later on Sept. 10, 2022, alongside applicable interest and late fees, the suit said.

Then, according to the suit, things started to go downhill.

Within a day or two of the repayment, Frost, according to the suit, made another request of Dunigan.

Dunigan had by that point learned that his initial loan was tied to the hydrogen plant startup, and Frost said he needed a three-day loan of $500,000 to complete the final steps to secure full funding for the project.

“Jonathan Frost assured plaintiff that the hydrogen deal was all but done and that the bank funding for the project would be completed in a few weeks, at which time his loan would be repaid,” the suit said.

Frost, the suit said, told Dunigan there was virtually no risk he would not be paid on time.

In fact, the suit alleged, Frost knew there was little or no likelihood he would get the necessary bank funding in that time span but knew Dunigan would only agree to the loan if it was on a short-term basis.

The lawsuit goes on to describe a series of delayed or missed payments on the loans and promises to make good once the deal went through.

By February 2023, Frost and his entities were insolvent as defined by Arizona law, Dunigan claims. By May 2023, interest payments on the first, third and fourth loans ceased, the suit said.

On Sept, 18, Dunigan, claiming to be owed more than $1.5 million from the three outstanding loans, filed a notice of default with Croft and Frost.

Dunigan’s attorney did not respond to a phone message or email seeking comment.

38 GUARANTORS

The narrative in Redstone Advance’s Oct. 31 complaint begins in early August 2023. According to a written agreement with Croft & Frost, Redstone Advance agreed to purchase 30% of “seller’s future receivables” up to a maximum of $7.8 million.

In exchange, the agreement said, Redstone Advance would pay Croft & Frost $5.2 million. According to the contract, the accounting firm at that point already had a “prior balance” of $4,035,890 with the lender. Redstone Advance’s purchase price included that figure, plus other fees and payments totaling about $1.2 million.

Upon sending that money, Redstone Advance was to debit $56,213 per day from Croft & Frost’s bank account — a figure, the contract stipulated, that could be changed upon request to more accurately reflect the seller’s revenue.

According to the lawsuit, the arrangement didn’t last long. After making one successful payment, Croft & Frost allegedly breached the contract Aug. 3.

From that day on, Redstone Advance alleged, it received no further payments. Now the lender claims it is owed $7.8 million by Croft & Frost — or its guarantors.

The 38 guarantors are listed in the purchase agreement, with a line to say who agreed on behalf of the entity to serve that function. The lines next to each guarantor feature Croft’s and Frost’s individual names, and many bear their electronic signatures as well.

According to the lawsuit, the guarantor entities agreed to ensure Croft & Frost would meet its obligations, and their failure to do so made them liable for the accounting firm’s debt.

Those guarantors include Croft and Frost themselves, Frost- and Croft-tied investment companies like the Well Fund and Scorpio Ref, as well as Tuftco Corp. — which also appeared as a guarantor on a previous suit against Croft and Frost and has been listed among several Croft and Frostassociated firms as a debtor on public documents.

TUFTCO LISTED

It is unclear why Tuftco Corp., of which Frost’s father is the chair and where Frost himself was until recently listed as an executive, would be included as a guarantor in a separate company’s financial agreement with Croft & Frost.

By email Friday, Tuftco Corp. President Mike Minter said his company has no connection to Croft & Frost and did not give its consent to be listed as a guarantor on financial agreements made by Croft & Frost.

“Tuftco Corp. has been in business since 1960 serving the carpet industry worldwide,” Minter wrote. “Tuftco has no affiliation with, nor has ever done business with, Croft and Frost, or any businesses associated with Croft and Frost. Tuftco is committed to continuing to serve our customer base, employees, suppliers and the community for many years to come.”