Adviser STOLE $14 MILLION FROM STARTUPS! Fees Too HIGH!

SEC v. Stuart Frost, Frost Management Company, LLC — U.S. Securities and Exchange Commission Litigation Release No. 26505, dated March 24, 2026.

Stuart Frost, an investment adviser, defrauded five private venture capital funds and their investors of over $14 million. He charged undisclosed and excessive "incubator fees" to startup companies the funds invested in, using the money for his personal expenses and company overhead. The SEC charged Frost with antifraud violations, and he ultimately consented to a judgment permanently enjoining him and requiring him to pay a $150,000 civil penalty.

In Plain English

Imagine you give money to a friend to invest in new companies. Your friend is supposed to be honest and only charge fair fees. Instead, your friend secretly charged the new companies way too much money for "help" and used most of that money to buy fancy things for himself. He also didn't tell you how much he was charging. The government found out and made him stop, and he had to pay a penalty.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Setting up the Model From 2012 through 2016, Stuart Frost managed five private venture capital funds, raising nearly $63 million from investors. He used a "Frost incubator model" where his company, Frost Data Capital (FDC), would "incubate" startup companies the funds invested in, providing support services.
2. Charging Secret Fees In return for these services, the startup companies paid "incubator fees" to FDC. However, Frost did not disclose the existence or the actual amount of these fees to the funds or their investors.
3. Diverting Funds for Personal Use A significant portion of these incubator fees was not used for legitimate business support. Instead, Frost used the money to cover FDC's overhead and pay his own "exorbitant salary" and "extravagant personal expenses."
4. Extracting More Fees When Frost needed more money to fund his "lavish lifestyle," he would create new portfolio companies. After investing more fund capital into these new companies, FDC would then extract even more incubator fees from them.
5. Charging Improper Management Fees In addition to the incubator fees, Frost and his company, Frost Management Company (FMC), also charged the funds "undisclosed and improper management fees," further depleting investor capital without proper disclosure.
6. Breaching Fiduciary Duty By charging these undisclosed and excessive fees, and by diverting funds for personal use, Frost and FMC acted in breach of their fiduciary duties to the funds and their investors.

The Enforcement Action

SEC Obtains Final Consent Judgment as to Investment Adviser to Five Private Venture Capital Funds. On March 10, 2026, the United States District Court for the Central District of California entered a final judgment as to Defendant Stuart Frost, whom the SEC previously charged with violations of the antifraud provisions of the Investment Advisers Act of 1940. The SEC’s complaint, filed on August 13, 2019, alleged that from 2012 through 2016, Frost defrauded five private venture capital funds and the funds’ investors of over $14 million by charging undisclosed and excessive incubator fees to start-up companies in which the funds invested, in breach of his fiduciary duties to his clients. Frost consented to the entry of a final judgment, which permanently enjoins him from violating Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, and orders him to pay a $150,000 civil penalty.

Named in this action: Stuart Frost, Frost Management Company, LLC.

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