A California financial advisor and his investment advisory firm were charged 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 complaint by the U.S. Securities and Exchange Commission.

The fees were used to support advisor Stuart Frost’s "exorbitant" salary and "lavish" lifestyle, which included a personal chef and housekeeper, an archery range, a beach club and luxury cars, the SEC complaint said.

The complaint alleged that Frost, 57, of Laguna Niguel, Calif., and his firm Frost Management Company LLC, an advisor to five private venture funds, raised nearly $63 million for the funds between 2012 and 2016. Frost and Frost Management Company then invested those funds in a portfolio of start-up companies.

During the five-year period, Frost raised nearly $63 million for the funds, mostly from high net worth individuals and trusts, the SEC said.

"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," the SEC said.

The start-ups were incubated by Frost Data Capital LLC, another Frost-owned company, using the so-called “Frost incubator model,” in which a Frost-owned company, Frost Data Capital (FDC), purportedly provided operational support and other services to help “incubate” the portfolio companies in anticipation of those companies maturing and ultimately being sold or acquired by another company, the SEC said. In return for those support services, the companies paid incubator fees to FDC, the complaint said.

In reality, the complaint said, a significant portion of the incubator fees were used to cover Frost Data Capital's overhead and to pay Frost's salary and personal expenses, the SEC said. When Frost needed more cash to pay his personal bills, for things like the personal chef and housekeeper, an archery range, beach club membership, a boat and luxury cars, he created new start-up companies, invested more fund capital in them, and then used Frost Data Capital to extract additional incubator fees, the complaint said.

Frost and FMC failed to disclose to the funds either the existence of or the actual amount of incubator fees or misleadingly represented that the incubator fees would be charged on a case-by-case basis and the charges were at or below market rate for the services, the complaint alleged. In so doing, the SEC complaint alleged that Frost and Frost Management Company violated their fiduciary duties as investment advisors.

The SEC's complaint seeks injunctions, disgorgement and prejudgment interest, and civil penalties.