FBI Probe of Frost Continues

Although a civil lawsuit was settled May 5, a criminal investigation of H.G. “Jack” Frost Jr. is proceeding.

I.C. Smith, special agent in charge of the FBI in Arkansas, says settlement of the suit against Frost will have no bearing on the agency’s investigation. Both the suit and the FBI investigation stem from Frost’s alleged embezzlement of $1.6 million from the Harvey and Bernice Jones Charitable Trust of Springdale, where he served as an accountant and trustee.

“The criminal investigation is continuing,” says Smith, adding that he couldn’t comment further.

Paula Casey, U.S. attourney for the Eastern District of Arkansas in Little Rock, says a grand jury would have to determine whether to indict Frost on federal charges of fraud or embezzlement, but Casey couldn’t say whether the case would go before the grand jury. Such information wouldn’t be made public until the grand jury had issued an indictment, she says.

David Matthews, attourney for Bernice Jones, 92, the Springdale philanthropist, mailed a three sentence press release May 5 to Northwest Arkansas media outlets annoucing that differences between Frost and trustees “have been settled to the mutual satisfaction of all parties.”

When contacted by telephone, Matthews offered no comment about the settlement.

The suit, which was filed Aug. 19 in Washington County Circuit Court, was dismissed with prejudice, which means it can’t be refiled. A one-sentence dismissal order signed by Circuit Judge Kim Smith was filed May 6.

Frost, who moved to Atlanta last year, was a Little Rock accountant at the time he worked for the trust. After discovering the alleged embezzlement, Mrs. Jones fired Frost as accountant and asked him to resign as trustee — effectively ending a friendship that spanned almost four decades. A bust of Frost was unceremoniously removed last July from the garden in front of the Harvey and Bernice Jones Center for Families in Springdale.

Frost was a co-trustee, along with Mrs. Jones, from the time the trust was established in 1988 until he resigned in March 1997. The two handled almost $100 million in contributions to a variety of charities. Frost was replaced as trustee by Joel Carver, a Springdale cardiologist, and Dan Ferritor, former chancellor of the University of Arkansas’ Fayetteville campus.

Frost has also served as a part-time accountant and handled investments for the trust from 1993 to 1997.

Call and response

Mrs. Jones and the new co-trustees of the trust filed suit against Frost last summer asking for $1.6 million in compensatory damages and $5 million in punitive damages. Mrs. Jones is the widow of Harvey Jones, who founded Jones Truck Lines.

The three trustees stated that Frost forged checks, falsified ledger entries, lied to auditors and destroyed documents in an effort to defraud the trust of more than $1.6 million.

“From the inception of the trust up to and through the date of Frost’s resignation as a co-trustee, the co-trustees had a mutual agreement that neither trustee would be compensated by the trust for their services,” the August suit states.

Frost denied all the allegations.

The suit says Frost and Mrs. Jones had agreed that he would be paid from her “personal or private business funds” to compensate him as business advisor and consultant. The suit states that Mrs. Jones paid Frost $1.1 million from Jones Investment and Trust Co. and Jones Investment Co. during the period in question.

But in the September response to the suit — basically the first filing in the discovery phase of the case — Alston Jennings Sr., Frost’s attorney, says Frost “denies that there was any agreement that he would not be compensated by the trust for his services.” Frost says the amount paid to him by Mrs. Jones’ companies wasn’t “intended to cover any services rendered to the trust.”

In the response, Jennings then quoted the “trust agreement” between Frost and Mrs. Jones, stating: “After the donor’s death, the trustees may charge and deduct reasonable compensation for the services rendered and the responsibilities assumed.” No further explanation of that statement was given in the lawsuit, and access to the trust agreement is sealed by court order.

Beginning in 1994, Frost began paying himself more than $300,000 a year from the trust in compensation and consultation fees, according to the trustees’ suit. (Frost allegedly paid himself $67,452 in 1993, the first year he was compensated for serving as accountant and trustee for the trust.) In their response, Frost and Jennings say those payments were “by agreement with Mrs. Jones and with her knowledge.”

In the September document, Frost says the additional payments that began in 1993 and escalated in 1994 were “reasonable and proper” to compensate him for the additional time and responsibility he assumed at that time to manage the trust’s assets.

Jennings says the investments made by Frost between 1993 and 1997 produced about $47 million in profits for the trust.

“It is ironic that rather than being grateful to Frost for the millions in profits that his investments produced, the trustees seek to hold Frost responsible and personally liable for an isolated small loss,” Jennings states in the court document.

Frost said Mrs. Jones knew he was paying himself the consultation fees, having signed letters herself that mentioned the payments.

Mrs. Jones responded in an October filing, saying she had seen the financial statements, but they were inaccurate and, in some cases, “deceitful and inaccurate in a deliberate attempt to avoid informing me of the true nature of Mr. Frost’s activities.”

As evidence, Mrs. Jones said Frost never disclosed investments to Murco Drilling of Shreveport, La., which ultimately amounted to a loss of $182,872. She said those investments were “falsely entered in the books as being related to Sun Co.,” an oil company in which the trust had previously invested. The trustees claim Frost made secret investments to Murco on his own behalf, but Frost denied that.

Mrs. Jones said the ledger and statement accounts never showed payments being made to Jack Frost Management Consulting Co. for consulting fees, management fees, office overhead or as personal salary to Frost.

Mrs. Jones admitted that she signed letters for independent auditors about the financial condition of the trust, but she implies that she only saw the last page of those letters — the page bearing her signature. Mrs. Jones says her signature didn’t appear on any pages containing information about payments to Frost.

Carver declines offer

In his response to Jennings’ inquiries, Carver says Frost offered him $500,000 per year to quit his medical practice and run the Jones Center for Families in Springdale on a full-time basis. Carver says Mrs. Jones lowered the amount to $350,000.

Carver says he realized the center couldn’t afford to pay him that much, so the trustees agreed to pay him $75,000 per year. Carver says Frost later presented him with a check for $90,000 from the trust, but “I tore up the check.”

“I then reduced my salary further to $12,000 per year and endorsed all of my payroll checks back to the center,” says Carver in the court filing. “I then made the decision that the Jones Center for Families could not afford to employ me on a full-time basis, and I reimbursed [the center] the monies that had been paid me up until then.”

Carver says the trustees realized after Frost’s resignation that the trust had insufficient funds to honor pledges to donate money to Hendrix College in Conway and the Arkansas Children’s Hospital in Little Rock. Plans were scrapped for a new student center building at Hendrix to be named for Frost.

In addition to the responses of Jennings’ questions, the October filings also contained examples of possible forgeries of Mrs. Jones’ signature on checks and invoices. An expert from Examination Consultants Inc. of Little Rock said the forged signatures were in a handwriting similar to Frost’s. Some of the checks in question were written to Frost’s management company.

According to IRS tax records, the trust gave more than $38 million to Arkansas charities in fiscal 1995, with most of that money — $24.2 million — going to the Jones Center for Families. In fiscal 1995 — from Dec. 1, 1995, to Nov. 30, 1996 — the trust had net assets that year of $37 million, down from $46 million the previous year. Total assets were $61.3 million in November 1996 with $24.6 million in mortgages.