Donnan’s Ponzi scheme settlement offer appears in doubt
Published 1:07 am Tuesday, August 30, 2011
MACON, Ga. (AP) — A judge raised concerns Monday about a proposed deal by former University of Georgia football coach Jim Donnan to settle claims by the new operators of a bankrupt company that he improperly profited from a Ponzi scheme involving the firm.
U.S. Bankruptcy Judge James Smith said he was unlikely to approve the $5.5 million settlement Donnan brokered with West Virginia-based liquidation company GLC Ltd. because he said it gave short-shrift to other parties who filed claims against the ex-coach. The new operators of GLC have sought to recoup what they said were improper gains Donnan received after convincing fellow college coaches and others to invest $70 million in a Ponzi scheme.
“I’m not sure I can bless this,” said the judge, who didn’t issue a formal ruling on Monday. He set another hearing date for Oct. 4 to give attorneys involved in the case more time to hash out their arguments.
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Donnan has not been charged with any criminal wrongdoing and his defense attorney has said the ex-coach wasn’t involved in a Ponzi scheme.
The deal was filed earlier this month to end months of litigation between the Donnans and GLC, which claimed the ex-coach invested about $5.8 million and was paid out about $13.2 million in the scheme. GLC, a liquidation company that resold surplus retail items, is being restructured in an Ohio bankruptcy court and is now being run by new operators who targeted Donnan in the court filings.
The firm said Donnan received a commission of up to 20 percent for each investment, and assured each potential investor the money would be used to buy products from major companies, according to court records. But only about $12 million of the $82 million was spent on inventory, the firm said.
Instead, much of the money was being used to pay back initial investors like Donnan, forcing the firm to seek out even more money from new backers, the filings said.
That “continuous influx” of funding dried up, it said, and the debt-ridden company was forced to file for bankruptcy protection in February.
Donnan’s attorney has acknowledged that his client was paid lucrative commissions, but he said Donnan believed he was being paid from legitimate profits earned by the company. Donnan said in the settlement he sought to pay back some of the winnings since late 2010, when he discovered the money he was earning came from other investors he helped recruit.
“The impetus to settle the case was to do what Coach Donnan and Mrs. Donnan thought was right,” said the attorney, Ernie Harris, who said the Donnans aren’t “buying their way out” by trying to settle.
James Burritt, who was hired to restructure GLC in December, took over the company a few months later after the co-founders stepped down. He and a team of accountants spent months reviewing the company’s tangled finances, and he said during the hearing that after his review he believes the firm ran a Ponzi scheme.
What little records the company kept showed Donnan played a key role in its growth, he said, becoming the second major investor to the company in August 2007 when he pumped in $150,000.
Donnan also was a magnet for others who roamed college football sidelines. Among the names listed in federal filings are Texas State football coach Dennis Franchione, Virginia Tech football coach Frank Beamer, ex-Dallas Cowboys coach Barry Switzer, Texas Tech football coach Tommy Tuberville, Texas Tech basketball coach Billy Gillispie and North Carolina State basketball coach Mark Gottfried.
All told, Burritt said, Donnan attracted roughly $70 million in investments from his list of investors.
“I put some money in. The money I put in, I got back out. That was it,” Beamer told reporters at a preseason Atlantic Coast Conference event. “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 … He told me he had a good deal for me, and that’s what I took it as.”
The other coaches named in the documents have declined to comment.
Former football coach Mike Gottfried, Mark’s uncle, was also sued in May by GLC, which claimed he made about $41,000 in “fictitious profits” from the firm. Defense attorney Jason Stitt urged a judge to dismiss the complaint in a June filing because the firm “comes before the court with unclean hands.” His client, he said, took the money in good faith.
Donnan a College Football Hall of Fame inductee who coached at UGA from 1996 to 2000, filed for bankruptcy protection in July amid GLC’s downward spiral. His attorney said Donnan, an ex-ESPN analyst, has struggled to find steady work amid the legal troubles.
Before the hearing, the former coach chatted amiably with attorneys from across the counsel table and said he was “hoping to finish this thing up.” But he appeared to grow more frustrated as the hearing crept into the afternoon and the judge signaled he wouldn’t accept the settlement.