Eleven years after his final season as the University of Georgia’s football coach, and two years after his induction into the College Football Hall of Fame, Jim Donnan is back in the news.
This time, no one is cheering.
Donnan and his wife, Mary, filed for bankruptcy this month, shortly before a lawsuit by an Ohio-based retail liquidation company alleged that Donnan was “substantially, if not principally, responsible for the initiation and operation of a far-reaching Ponzi scheme” that cost investors $27 million.
Donnan’s attorney denies the allegation, contending that if there was a Ponzi scheme, the former coach was, like other investors in the now-insolvent business, unaware of it.
“If this was a phony scheme, a lot of people were fooled, including, I submit to you, Jim Donnan,” Athens attorney Edward Tolley said in an interview with The Atlanta Journal-Constitution.
The saga is unfolding via legal volleying in federal courts in Ohio — where the company, GLC Limited, filed for bankruptcy in February — and Georgia, where the Donnans filed July 1.
GLC disclosed in the Ohio case that in May it received a grand-jury subpoena from the U.S. Attorney’s office for records. Some documents were to be turned over in June and others in July. A spokesman for the U.S. Attorney’s office in Columbus, Ohio, did not respond to requests for comment.
Bankruptcy court filings reveal that GLC attracted investments from a number of well-known sports figures, including Virginia Tech football coach Frank Beamer, Texas Tech football coach Tommy Tuberville, former Oklahoma and Dallas Cowboys coach Barry Switzer, Texas Tech basketball coach Billy Gillispie and former Georgia football player Kendrell Bell. Close to 100 investors were involved, more than 50 of them recruited by Donnan, according to court papers.
Lawyers for the bankrupt GLC describe in court filings a financial scheme in which the company depended on the “continuous influx” of new money from investors to pay off obligations to earlier investors at interest rates of 50 percent or more. Eventually, new investments fell short and GLC defaulted on its financial obligations, leaving some investors with considerable losses.
Donnan’s knowledge, or absence of knowledge, of such an arrangement is a matter of sharp dispute in court papers.
Donnan declined to comment for this article, referring questions to Tolley, who told the AJC late Thursday that he is “optimistic” of reaching a negotiated settlement on how much money — apparently somewhere between $5 million and $8.25 million — Donnan will repay to GLC’s bankruptcy estate and creditors.
GLC’s Cincinnati attorney, James Frooman, declined to comment.
Big promises
Donnan, now 66, was Georgia’s football coach from 1996 through 2000, when he was fired by UGA President Michael Adams and replaced by Mark Richt. Donnan had a 40-19 record with the Bulldogs.
He has not coached since losing the Georgia job and has continued to reside in Athens. He has worked some as a football analyst on TV and radio, but “I’m really just kind of ‘Mr. Retired,’” he said in a 2009 interview with the AJC.
In July 2009, he was inducted into the College Football Hall of Fame, mainly for his 64-21 record and four appearances in the Division I-AA championship game as head coach at Marshall from 1990-95.
According to court documents, GLC was formed by Gregory and Linda Crabtree in 2004 and was based in Proctorville, Ohio, about five miles from Marshall’s campus in Huntington, W.Va. The company was in the business of buying truckloads of close-out or excess merchandise — anything from refrigerators to pottery — from well-known retailers and selling the inventory at stores in West Virginia, Ohio, Indiana and Tennessee or on eBay.
Investors generally committed money for six to 12 months at hefty interest rates on the premise that the funds would be used to buy merchandise for resale at big profits.
But GLC’s court filings say the company brought in $81.9 million in investor money from 2007 through 2010 and purchased only $11.8 million of inventory.
Donnan became one of GLC’s first investors, eventually putting in at least $5.4 million at interest rates “in excess of 50 percent,” according to court papers.
“While [Donnan] may have initially been merely an investor in GLC, his role quickly grew,” the company’s filings say.
Donnan received commissions of 15 to 20 percent on new investments he recruited from others, according to the court papers.
Donnan’s lawyers countered in a filing that the Crabtrees were “solely responsible for the assets and operation” of GLC and that any assurances Donnan made to investors were based on what he was told about the business and believed to be true.
The Crabtrees’ Cincinnati attorney, Michael Schmidt, said he has “no comments at this time.” In court documents, the Crabtrees “deny that they intentionally engaged in an ‘investment scheme’ as alleged.”
Beamer told reporters last week at the ACC’s preseason media event in Pinehurst, N.C., that he was encouraged to invest by Donnan.
“I put some money in,” Beamer said. “The money I put in, I got back out. And that was it. I don’t know that Jim knew what it was when he was encouraging me to put some money in. He’s a good friend and ... told me he had a good deal for me. That’s what I took it as.”
Tolley said that, “as late as 2010,” Donnan believed GLC was a “legitimate business” making payments to investors from profits.
But the lawyers seeking to recover money argue in court papers that it is “not credible” to have believed the company “could legitimately pay the exorbitant interest rates and commissions.”
GLC, which was turned over to a restructuring officer shortly before filing for bankruptcy, says Donnan and his family members received $14.5 million in payments, far exceeding his $5.4 million investment. Such profits are being sought for the benefit of others who lost money, according to court documents.
Donnan “wants to do whatever he’s got to do” to settle the case, Tolley said. As for how much Donnan will pay back, Tolley said: “The argument sometimes is not, ‘What did you get?’ It’s, ‘What have you got left?’”
Tolley said Donnan has $4.1 million to $5 million in liquid assets, and “that’s on the table.”
Donnan “has told me he regrets to the bottom of his heart this has happened,” Tolley said. “I can assure you there is a lot of remorse here, but remorse doesn’t pay bills, which is why we are trying to get up money to put in the hands of creditors.”
Recovering money
There is a flood of litigation as lawyers for GLC and its unsecured creditors seek to recoup money from those who posted net gains.
In mid-July, GLC attorneys filed a lawsuit against the Donnans, seeking, among other things, “any proceeds of the ... ponzi scheme.” Donnan’s lawyers countered that the lawsuit “knowingly and intentionally contained many false allegations and inaccurate statements.” On July 22, a U.S. Bankruptcy Court judge signed an order prohibiting the Donnans from disposing of assets, limiting their spending to $8,270 over the next 30 days and scheduling an Aug. 29 hearing in Macon.
GLC lawyers also have filed suits against the Donnans’ children and/or their spouses, alleging they profited from investments, and against the Crabtrees.
In May, GLC sued former football coach Mike Gottfried, alleging that he invested $250,000 and received payments totaling $291,665. Gottfried, in a response filed by his attorney, admitted investing money and receiving payments, but said he did so “for value and in good faith.”
Attorneys for GLC and its creditors also filed an objection to Donnan’s payment of a $200,000 retainer to Tolley’s firm for lawyers and an accountant. The filing argues that Tolley was retained primarily for “any forthcoming criminal proceedings” and should not be compensated with money that could go to GLC creditors.
Although a well-known criminal-defense attorney, Tolley noted that he also is a civil and business litigator. He long has represented the UGA Athletic Association on legal and NCAA matters. He said he does not expect criminal proceedings against Donnan.
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