Ponzitracker

A former college football coach at the University of Georgia has been charged with operating a Ponzi scheme that took in more than $80 million from victims that included fellow coaches and former players. The Securities and Exchange Commission ("SEC") alleged in a complaint filed Thursday that Jim Donnan committed multiple violations of federal securities laws by soliciting investors for his liquidation business and promising exorbitant annual rates of return ranging from 50% to 380%. According to the SEC, Donnan used little of the $80 million raised for authorized purposes, using the rest to operate one of the largest Ponzi schemes in Georgia history. The SEC is seeking injunctive relief, disgorgement of all ill-gotten proceeds, and civil monetary penalties.

Donnan, along with Gregory Crabtree ("Crabtree"), operated GLC Limited ("GLC"), which was formed in 2004 and purported to be in the wholesale liquidation business. Beginning in 2007, potential investors were told that GLC would purchase discontinued or damaged merchandise from major retailers at a discount, and then resell those goods at a substantial profit to other liquidators or discount retailers. The merchandise ranged from out-of-season toys, patio furniture, or holiday decorations. Investors were given the opportunity to "fund" specific deals, with GLC and the investor splitting the resulting "profits". The deals, according to Donnan, offered interest rates of 13% to 40% which, when represented returns of 50% to 380% on an annualized basis. Between August 2007 and October 2010, nearly 100 investors contributed approximately $80 million to the scheme.

However, out of the $80 million raised from investors, slightly more than 10% was used to purchase merchandise for resale. Of that merchandise, only $4.1 million was ever resold. The remainder, or nearly $68 million, was used to make payments of purported interest and principal redemptions to investors. Crabtree and Donnan also misappropriated millions of dollars of investor funds, with Crabtree taking approximately $1 million, and Donnan paying himself $7.4 million in "returns" on his original $5.8 million investment. After GLC began missing interest payments, a group of investors obtained the appointment of a Restructuring Officer, who discovered the fraud and, in February 2011, caused GLC to file a voluntary bankruptcy petition. Donnan also filed for personal bankruptcy following increasing claims from GLC victims.

Before his tenure as head football coach at the University of Georgia, Donnan was the head coach at Marshall University. He lwas inducted into the College Football Hall of Fame, and later served as an ESPN analyst. It was through these connections, alleged the SEC, that Donnan recruited scores of victims to GLC. These victims included fellow football coaches Tommy Tuberville of Texas Tech, Frank Beamer of Virginia Tech, and former Dallas Cowboys coach Barry Switzer, as well as at least one former player who Donnan solicited based on his "fatherly-figure" stature.

In its complaint, the SEC also singled out two of Donnan's children and a son-in-law for receiving large "returns" from the scheme, naming them as relief defendants in the complaint. A relief defendant is not alleged to have committed any wrongdoing, but rather has funds that are traceable to the wrongdoing and cannot assert any legitimate claim to. The children, their investment amounts, and their "returns" are listed here:

Todd Donnan: invested $232,000 - received $620,333.
Tammy Donnan: Invested $16,000 - received $140,000.
Gregory Johnson: Invested $141,000 - received $617,875.

In order to keep the funds, the Donnan children must be able to show a legitimate origin of the funds. The SEC will likely seek the return of the funds from the children through summary procedures.

Donnan's lawyer questioned the motives of the SEC, claiming that Donnan was "broke".

A copy of the SEC's complaint is here.