News Summary
Butterfly Capital Group has filed a lawsuit against First Liberty Building & Loan and its owner following an alleged Ponzi scheme defrauding investors of $140 million. The SEC has also charged First Liberty and its owner with misappropriating funds. The lawsuit seeks damages, a full accounting of funds, and a halt on future investment ventures by the defendants. This case highlights concerns regarding guaranteed returns in investments and the regulatory oversight of financial practices.
Atlanta – Butterfly Capital Group has filed a lawsuit against First Liberty Building & Loan and its owner, Edwin Brant Frost IV, after investing $150,000 in what is now being described as a significant Ponzi scheme. According to reports, the scheme has defrauded approximately 300 investors out of at least $140 million, with allegations that it has been operating since at least 2021.
The Securities and Exchange Commission (SEC) has taken legal action against First Liberty and Frost, filing charges on July 10, 2025. The SEC claims that Frost misappropriated investor funds for various personal expenditures. This includes over $2.4 million in credit card payments, more than $335,000 spent at a rare coin dealer, and $230,000 on family vacations. The nature of the investments centered around promissory notes and loan participation agreements, which promised returns as high as 18%.
Butterfly Capital’s lawsuit seeks not only compensatory and punitive damages but also a full accounting of the misappropriated funds, and a court order to prevent Frost and his associates from launching similar investment ventures in the future. The lawsuit highlights the risks associated with guaranteed returns, a point of concern raised by compliance executives who questioned Butterfly Capital’s due diligence in the investment process.
Background on the Investments
Manu Gupta, the principal of Butterfly Capital, was introduced to Frost in March 2024. During their meetings, they discussed potential investment opportunities related to a medical practice based in Georgia. Following this introduction, Butterfly Capital made two investments: $100,000 in March 2025 and an additional $50,000 in May 2025, only weeks before the complete collapse of the scheme.
The SEC’s investigation indicates that Frost perpetuated the scheme by using funds from new investors to pay returns to earlier investors, a classic characteristic of Ponzi operations. Throughout the years 2014 to June 2025, investors were assured of low default rates on loans, with repayments expected from Small Business Administration loans and other commercial loans. However, these assurances now appear to be unfounded as the reality of the scheme has come to light.
Impact on the Political Landscape
The fallout from the collapse of First Liberty Building & Loan has sent shock waves through the political landscape in Georgia, particularly as Frost and some of his relatives have lineage tied to the Georgia GOP. The scandal has raised concerns about the entanglement of financial mismanagement and political networks in the state.
An email sent by Frost in May indicated that he anticipated a 12% return on a $50,000 investment in “First Liberty Notes,” which were marketed as short-term, high-yield business loans. Such promises have since been scrutinized for their viability and legality.
Regulatory Context
Butterfly Capital Group is noted to not be a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA) or a registered investment advisor. This lack of registration raises questions about the firm’s ability to perform adequate due diligence on investments made within a framework that supposedly offered guaranteed high returns. Industry experts have commented on the red flags associated with such promises, emphasizing the importance of thorough investigation before investing.
The SEC’s ongoing investigation aims to recover losses incurred by defrauded investors and to hold accountable those responsible for the scheme. Both First Liberty Building & Loan and Frost are at the center of significant legal scrutiny as the implications of their actions unfold in the courts.
As the legal battle progresses, it highlights the potential vulnerabilities present in investment opportunities that promise unusually high returns, underscoring the necessity for potential investors to educate themselves and be vigilant about the legitimacy of such ventures.
Deeper Dive: News & Info About This Topic
- Investment News
- Wikipedia: Ponzi Scheme
- AJC
- Google Search: First Liberty Building & Loan
- PE Hub
- Encyclopedia Britannica: Investment
- Secondaries Investor
- Google News: Investment Scandals
