Frost facing federal criminal investigation
Federal law enforcement has been investigating Chattanooga businessman Jonathan Frost, according to a state agency, raising the specter of criminal fallout from a case that a Tennessee regulator called one of the more egregious violations of the public trust he has seen.
Since his businesses collapsed in September, Frost — the scion of a wealthy and influential Chattanooga family — has been accused in news accounts, government complaints and lawsuits of fraudulently siphoning money and bilking investors, many of them his accounting clients, as part of a multimilliondollar Ponzi scheme.
Local, state and federal law enforcement representatives have declined to comment or denied knowledge of any criminal investigations regarding Frost. And several of his former clients and investors have told the Chattanooga Times Free Press that they have not been contacted by federal investigators seeking information.
But experts say criminal investigators tend to share little if any information about active probes with the public. And it was partly the understanding that federal law enforcement was working to bring Frost to justice that convinced Tennessee Board of Accountancy members last month to streamline their own proceedings by making an agreement with him.
In that agreement, Frost permanently surrendered his Tennessee accounting license and admitted, among other things, to running “investment fraud schemes.”
The accounting board acted largely on the basis of a report dated Feb. 2 — which the Times Free Press received last week through a public records request — produced by an attorney with the Tennessee Department of Commerce & Insurance.
“Respondent has declined to make a statement or sit for an interview with the assigned investigator due to the advice of his counsel, asserting his Fifth Amendment rights due to the ongoing federal criminal investigations into his conduct,” said the legal report, which did not name Frost but referenced complaint ID numbers and details that correlate with 19 such complaints against Frost. “Respondent is not only facing pending federal investigations but is also facing other civil actions and lawsuits concerning these matters.”
In two days of early February meetings, accounting board members sought to balance what they said was their responsibility to protect the public by promptly ejecting the accountant — who they also left unnamed — from the CPA profession with their stated desire to punish him with civil penalties commensurate with the gravity of his conduct, a move the agency’s attorney warned could lead to a drawn-out contested case, thus delaying the permanent revocation of the accounting license.
That attorney, Neil Stauffer, said the board would clearly prevail in such a case, and board member Kevin Monroe said that, if the board wanted to pursue civil penalties, it could probably come up with a “number that would be big enough to drive a semitruck through.”
Another board member, Brad Floyd, said, “It’s one of the more egregious, I suppose, violations of public trust that I have ever seen.”
But many board members said they were wary of seeking whatever money the accountant in question still has that might otherwise go to victims. And they took solace in the idea other wheels of justice were turning.
“We’re not the only ones in play that are going to provide some kind of a restraint or discipline on this person,” Monroe said. “We’re trying to protect the public from a CPA licensure standpoint. But from what staff have indicated, there are numerous federal criminal investigations and numerous civil actions that are planned here.”
Board Chair Jack Andy Bonner Jr. agreed, saying he wanted deeply to assess some type of financial penalty. But he said the accounting board is charged with public protection, and the prospect of the accountant in question reestablishing his accounting license before a contested hearing could be resolved was not acceptable to him.
“I also have to have trust and faith in the system, that the investigators, the attorneys, the judges are going to do their part to ensure that this individual pays — and pays at a high price,” Bonner said.
Considering the accounting profession, he added, “We’ve never had anything like this in the state of Tennessee to this level.”
BIG PROMISES
Jonathan Frost began his Chattanooga accounting business, J.D. Frost & Co., more than a decade ago. He did not respond to requests for comment for this article, but he has said on social media that he grew tired of replicating the model of accounting firms of generations past.
A recovering alcoholic, Frost around 2018 split with his thenbusiness partner and found a new vision for his firm in a flourishing subculture defined by flashy business influencers like Grant Cardone, the self-described “world’s No. 1 sales trainer.”
Frost later linked up with Chicago insurance salesperson Paul Croft and, through the accounting firm they eventually renamed Croft & Frost and other ventures, the duo projected an ethos of relentless hustle and ostentatious wealth, as their firm gave aggressive tax advice rooted partly in the idea that latent in every person is a potentially monetizable personal brand — and thus an untapped universe of retroactive tax deductions.
Through a sprawling array of limited liability companies in Tennessee, Illinois and elsewhere, Frost also began soliciting loans and investments — for real estate ventures and eventually for a proposed green hydrogen plant in the Arizona desert.
In promissory notes, he promised high-interest returns, often in a matter of months. In at least a few cases, some of his backers told the Times Free Press or said in court documents they did receive the pledged funds, though often on a delayed basis.
But by the latter half of 2022, many have alleged, repayments were getting unreliable, and Frost encouraged those with money coming due to reinvest, promising even greater future earnings if they gave him more time.
Cracks were showing up for accounting firm staff as well. Payday came late in December 2022, as in a legally suspect arrangement, Croft & Frost employees were compensated as though they were independent contractors of Rhino Onward International, Croft and Frost’s separate firm focused on the hydrogen plant, the Times Free Press has reported.
By June 2023, the accounting firm Croft & Frost began consistently failing to make payroll on time as Frost, seeking new cash infusions and to assuage the concerns of those demanding their money, promised that business breakthroughs — particularly with the Arizona hydrogen plant — were near at hand.
After a summer of such promises, in September, Frost abruptly shuttered the accounting firm, and the green energy firm’s CEO said its management resigned, citing nonpayment and their own concerns with the businesses’ owners.
Around that time, numerous people and entities have alleged, scheduled payments to investors and creditors, already becoming unreliable, ground to a halt. To many of Frost’s accusers, the contours of a Ponzi scheme — an arrangement in which new investor money is used to service debt to previous ones — began to emerge.
In interviews, people out tens or even hundreds of thousands of dollars described feelings of betrayal, anger and loss, with some saying they have had to to scrap their retirement plans.
Several aggrieved parties filed complaints with state regulators. And then there were the lawsuits, filed in jurisdictions across the nation. Creditors and investors sought promised funds. A business partner said Frost fraudulently siphoned money from their Chattanoogabased firm, The Well Fund. And a client alleged Frost “robbed Peter to pay Paul to stay afloat.”
All told, plaintiffs collectively seek tens of millions of dollars in damages from Frost, as well as entities and people to whom he is tied.
Croft, Frost’s old business partner, is named a defendant in many, though not all, of the same lawsuits as Frost and is listed in state databases as a manager at some of the firms alleged to have been involved with investor fraud.
By phone last week, Croft said he has barely been involved in recent years with his and Frost’s businesses. Since October 2021, he said, Frost and others have actively managed their firms, though he sometimes came by company offices and attended events.
That arrangement, he said, changed just a few days before their accounting firm’s September collapse, when he said Frost asked him to come back and take an active role running Croft & Frost.
Croft said he has not been approached by Tennessee investigators. Told of the state regulator’s report of a federal criminal investigation, he said, “That is news to me.”
THE INVESTIGATORS
Federal investigators are not the only ones said to be looking into Frost’s conduct. On Feb. 23, an official with the securities division of the Tennessee Department of Commerce & Insurance emailed an aggrieved former Croft & Frost client and investor to encourage him to file a complaint with the state.
“We are looking into the situation with Jonathan Frost and Paul Croft and their offering of Rhino Onward securities,” said Winnie Forrester, a financial services investigator for the regulator, in a copy of the email obtained by the Times Free Press. “We are in the very early stages and are looking for investors in their funds.”
The newspaper sought additional information from Forrester and other agency officials, but a spokesperson, Kevin Walters, on their behalf said it would not be appropriate for the department to comment regarding any questions outside of the accounting board’s action.
The Tennessee attorney general’s office did not respond to questions about whether it was involved in an ongoing investigation of Frost. By phone, Hamilton County District Attorney Coty Wamp said she is not aware of any law enforcement investigation of Frost.
Speaking generally rather than about a specific case, she said allegations that involve victims in multiple jurisdictions are best handled by federal agencies and prosecutors, who also tend to have more experience dealing with white-collar crime.
In cases of investment-related fraud crossing state lines, the FBI would typically investigate potential crimes, while the U.S. Securities and Exchange Commission, a regulator, looks into potential civil violations, said Joan MacLeod Heminway, who teaches securities law at the University of Tennessee College of Law, by phone Friday.
Such investigations, she said, might entail interviewing alleged victims and obtaining and looking through bank records, among other things.
In a criminal case, the FBI could deliver its findings to a U.S. attorney’s office, which then could decide to present the findings to a grand jury, which in turn would determine whether to issue an indictment.
The FBI did not respond to a request for comment last week, nor did the U.S. Securities and Exchange Commission.
Asked about Frost, Rachelle Barnes, a spokesperson for the U.S. Department of Justice, said by email, “The U.S. attorney’s office for the Eastern District of Tennessee has no comment.”
ONE-WAY STREET
Federal investigative agencies tend to be a one-way informational street, said Andrew Jennings, who teaches about whitecollar crime at Emory University School of Law.
“They will take information,” he said by phone last week. “But I wouldn’t expect there to be any information available to victims until there’s information available to the public in the form of an indictment or a civil lawsuit filed by a regulator.”
Traditionally, defendants in cases involving investment fraud would be charged with securities fraud, but recently federal prosecutors have leaned more heavily on the easier-to-prove wire fraud charge, Jennings said.
Where financial depositories like banks are involved, a bank fraud charge sometimes also follows, Jennings said. And some financial crimes tend to occur in tandem with others, he said, noting people who defraud investors and bankers in one area are often shorting the IRS in another.
Punishment meted out to those convicted of financial crimes reflects a number of factors and is potentially mitigated by, among other things, whether the defendant cooperates with law enforcement in the prosecution of others, accepts responsibility for their actions or pleads guilty before trial, Jennings said.
John Woods, the Chattanooga Lookouts investor who pleaded guilty last year to wire fraud for what prosecutors said was an unrelated Ponzi scheme that resulted in $50 million in investor losses, is set soon to report to an Alabama prison to start serving a nearly eight-year prison sentence.
On another extreme side of the spectrum is Sam BankmanFried, the cryptocurrency mogul convicted of wire fraud, money laundering and conspiracy for presiding over a vast scheme federal prosecutors say cost victims collectively billions of dollars. According to The Associated Press, prosecutors on Friday asked a judge to sentence Bankman-Fried to between 40 and 50 years in prison for crimes they described as historic.