SEC Charges California-based Frost Management Company, LLC with Fraud

On August 13, 2019 the Securities and Exchange Commission (SEC) charged Stuart Frost and Frost Management Company, LLC of Laguna Niguel, California 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 a press release.

As investment advisors to five private venture capital funds, Frost Management Company “raised nearly $63 million for the funds between 2012 and 2016,” according to the SEC. Frost invested this money into start-ups. Their affiliate company, Frost Data Capital, LLC (formerly known as Frost Venture Partners, LLC), served as an incubator for these start-ups. In return, start-ups paid fees to Frost Data Capital for “operational support and other services in anticipation of the companies maturing or ultimately being sold,” according to the SEC. In reality, the SEC alleges, Stuart Frost used the majority of this money for his own personal enrichment instead of as overhead for Frost Data Capital or support for the start-ups. While Frost said that these fees were levied on a case-by-case basis for each company, they were fixed fees, ranging from $30,000 to $40,000 per month. According to the SEC’s complaint, “When Frost needed more cash to fund his lavish lifestyle, he created new portfolio companies and, after investing more fund capital into the new companies, FDC then extracted even more incubator fees.”

As Frost Management Company solely advised venture capital funds, it was exempt from registration as an investment adviser. When he founded Frost Management Company in 2011, Stuart Frost had no experience as an investment adviser or manager of a fund.

Frost managed a several funds, designated by the SEC as “pooled investment vehicles.” According to the SEC’s complaint, ““The Funds invested in portfolio companies created by FDC that had a purported emphasis on big data analytics and cloud computing and later, the ‘internet of things,’” and included:

  • Frost VP Seed, LLC: “raised approximately $7,570,000 from roughly 30 investors in 2012”
  • Frost VP Seed International, LLC: “raised approximately £412,750 ($636,798) from roughly 45 investors in 2012”
  • Frost VP Early Stage Fund II, LP: raised approximately $41,189,521 from roughly 74 investors in 2013-2014
  • FVP International Feeder Fund L.P.: “raised approximately $5,250,000 from roughly two investors in 2013-2015, which was then invested in Fund II”
  • Frost Fund III, L.P.: “raised approximately $13,440,000 from roughly 11 investors in 2015-2016”


The SEC goes on to allege that “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 SEC, the Frost incubator has not been a success; no investors have received any returns. By early 2018, only a few portfolio companies were still active.

If you have questions about Securities and Exchange Commission v. Stuart Frost and Frost Management Company, LLC or startups and investment fraud, don’t hesitate to contact the securities attorneys of Fitapelli Kurta at (877) 238-4175 or email