Donnan charged in Ponzi scheme
Michael Tremoglie Aug. 16, 2012, 5:29am
WASHINGTON (Legal Newsline) - The Securities and Exchange Commission says fraud charges have been filed against former Marshall University football coach Jim Donnan for his involvement in an $80 million Ponzi scheme.
The SEC says those duped included other college coaches and former players.
The SEC alleges that Donnan, a College Football Hall of Fame inductee who guided teams at Marshall and Georgia then later became a television commentator, conducted the fraud with his business partner Gregory Crabtree through a West Virginia-based company called GLC Limited. Donnan and Crabtree told investors that GLC was in the wholesale liquidation business and earning substantial profits by buying leftover merchandise from major retailers and reselling those discontinued, damaged, or returned products to discount retailers.
Investors were promised rates of return ranging from 50 to 380 percent. Yet, only about $12 million of the $80 million raised from nearly 100 investors actually was used to purchase leftover merchandise. The remainder of the money was used to pay earlier investors or misappropriated by Donnan and Crabtree, according to the SEC.
"Donnan and Crabtree convinced investors to pour millions of dollars into a purportedly unique and profitable business with huge potential and little risk," said William P. Hicks, associate director of the SEC's Atlanta office. "But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out."
According to the SEC's complaint, filed in federal court in Atlanta, the scheme began in August 2007 and collapsed in October 2010. Donnan recruited the majority of investors by approaching contacts he made as a sports commentator and as a coach.
The complaint states, "For instance, he capitalized on his influence over one former player by telling him, 'Your Daddy is going to take care of you' ... 'if you weren't my son, I wouldn't be doing this for you.' The player later invested $800,000."
The SEC's complaint alleges that Donnan touted GLC's success and profitability. He told investors that the company could enter into even more merchandise deals with more capital. Donnan and Crabtree offered and sold investments that were short-term (2 to 12 months) and purportedly high-yield, with returns paid to investors in monthly or quarterly installments or in a one-time payment.
Donnan told investors their money purchased specific items of merchandise that were often presold and thereby diminished the investment risk. But, much of the merchandise that GLC actually purchased was merely left unsold and abandoned in warehouses in West Virginia and Ohio.
The SEC alleges that Donnan typically assured investors that he too was investing along with them. He dropped the names of other prominent college football coaches who he claimed had successfully and profitably invested in GLC. By the time the scheme collapsed, Donnan had actually siphoned more than $7 million away from GLC, and Crabtree used approximately $1.08 million in investor funds.
The SEC's complaint charges Donnan, who lives in Athens, Ga., and Crabtree, who resides in Proctorville, Ohio, with violations of the antifraud and registration provisions of the federal securities laws.
According to the complaint, Donnan allegedly "also directed large sums of investor proceeds to two of his adult children and a son-in law, namely, daughter Tammy Donnan, son Todd Donnan, and son-in-law Johnson. Each of the Donnan children invested relatively modest amounts in the scheme and then received regular streams of payments for a substantial duration of the fraud, resulting in unjust enrichment."
Because of these actions the SEC named two of Donnan's children and his son-in-law as relief defendants in the complaint for the purpose of recovering illicit funds that Donnan steered to them.