Jim Donnan, a former N.C. State University quarterback in the 1960s and a head football coach at two colleges, has been accused by the Securities and Exchange Commission of conducting an $80 million Ponzi scheme that preyed on college coaches, former players and big-time athletics boosters.
The commission contends that Donnan, a College Football Hall of Fame coach who led the University of Georgia Bulldogs and Marshall University Thundering Herd in West Virginia, engaged in fraud with his business partner, Gregory L. Crabtree.
According to an SEC complaint filed Thursday, the men formed a West Virginia-based company called GLC. They tried to lure investors with Wolfpack mens basketball coach Mark Gottfried and Virginia Tech football coach Frank Beamer among them by offering high-yield, short-term investments with return rates ranging from 50 to 380 percent, the complaint states.
The men told their investors that GLC was in the wholesale liquidation business. They claimed to buy leftover, discontinued, damaged or returned merchandise from major retailers, then resell the wares at a substantial profit to discount retailers and other liquidators.
Donnan, who worked as a college football analyst for ESPN after coaching, recruited the majority of the 97 investors, according to SEC investigators.
Many of the individuals Donnan approached were contacts he made as a sports commentator and former college football coach, the complaint states, in some instances using his position of influence on former players.
For example, when approaching a former player that Donnan had coached, Donnan told him: Your Daddy is going to take care of you and if you werent my son, I wouldnt be doing this for you, the SEC complaint states. That player later invested $800,000. The former player was not identified.
Of the $80 million raised, only $12 million was used to purchase the appliances and furniture.
Investors contend they were encouraged to rollover principal or interest payments into new deals.
Donnan told some investors their profits were guaranteed and told at least one investor you cant lose your money; its already pumping oil, the complaint states.
Alums, athletes targeted
Gottfried, who like Donnan was an ESPN analyst, invested $250,000 in the company, according to court filings. Dwayne Harrison, sports information director for the NCSU mens basketball team, said Thursday that Gottfried was traveling and not available to comment.
Maurice Koury, a UNC-Chapel Hill athletics booster, was also among the investors, according to court files. Other investors included Texas Tech basketball coach Billy Gillispie, former University of Georgia football player Kendrell Bell and prominent former and current college football coaches Barry Switzer, Dennis Franchione and Tommy Tuberville.
The SEC included Jeffrey Todd Donnan, 39 of Athens, Ga., Tammy L. Donnan, 49 of Marietta, Ga., and Gregory K. Johnson, 47, of Oklahoma City, Okla., as relief defendants in the civil case, alleging that Donnan had funneled money to his son, daughter and son-in-law.
By including them in the complaint, the SEC hopes to recoup funds from them.
It is unclear whether criminal charges will follow. Federal prosecutors have not publicly indicated whether an investigation is underway. Problems in 2010
Problems with GLC became evident to investors in late 2009 or early 2010, when Crabtree told Donnan the company could no longer pay the rates of return he had been promising, according to court filings. The company began missing interest payments in August 2010.
In June 2011, Donnan and his wife, Mary, filed for Chapter 11 bankruptcy in Georgia federal court. In July 2011, federal court documents in bankruptcy court in Ohio accused the Donnans of making millions of dollars from the Ponzi scheme.
The SECs complaint charges Donnan, 67, who lives in Athens, Ga., and Crabtree, 50, of Proctorville, Ohio, with violations of the antifraud and registration provisions of the federal securities laws.
Donnan and Crabtree convinced investors to pour millions of dollars into a purportedly unique and profitable business with huge potential and little risk, William P. Hicks, associate director of the SECs Atlanta Regional Office, said in a statement. But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out.