Former University of Georgia college football coach James Donnan III was charged by the Securities and Exchange Commission today with conducting an $80 million Ponzi scheme that included other college coaches and former players among its victims.
The SEC alleges that Donnan, 67, a College Football Hall of Fame inductee who guided teams at Marshall University and the University of Georgia and later became an ESPN college football analyst, conducted the fraud with his business partner Gregory Crabtree through a West Virginia-based company called GLC Limited, according to the SEC's complaint, filed in federal court in Atlanta.
Donnan, of Athens, Ga., and Crabtree, 50, of Proctorville, Ohio, are charged with violating antifraud and registration provisions of federal securities laws. The complaint also names two of Donnan's children and his son-in-law as relief defendants. (Authorities hope to recover illicit funds Donnan steered to them.)
Donnan was the offensive coordinator for the University of Oklahoma Sooners from 1985 to '89 (the team won the 1985 national championship). According to reports by ESPN and other outlets, one of the coaches Donnan attracted money from was Sooners head coach Barry Switzer -- also the former coach of the Dallas Cowboys. From 1996, to 2000, Donnan coached at the University of Georgia. In 1992, he won a national title as the coach of Marshall (then in Division I-AA).
Donnan and Crabtree told prospective investors they owned an "extremely profitable" wholesale liquidation business that bought leftover merchandise from major retailers and then resold discontinued, damaged or returned products ranging from children's toys to refrigerators to discount retailers. He also told investors their money was being used to purchase specific items of merchandise that were often presold, so there was little to no risk to investing in any deal. However, much of the merchandise that GLC actually purchased was merely left unsold and abandoned in warehouses in West Virginia and Ohio.
The two men promised investors exorbitant rates of return ranging from 50% to 380%. However, only about $12 million of the $80 million raised from nearly 100 investors was actually used to purchase leftover merchandise, with the remaining funds used to pay fake returns to earlier investors or stolen by Donnan and Crabtree.
According to the SEC, Donnan claimed that he and other prominent college football coaches had successfully and profitably invested in GLC. But by the time the scheme collapsed, Donnan had actually siphoned more than $7 million away from GLC, and Crabtree misappropriated approximately $1.08 million in investor funds.
Donnan recruited the majority of investors by approaching contacts he made as a sports commentator and as a coach. For instance, the SEC claims 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.
"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 regional office. "But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out."