U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22453 / August 17, 2012
Securities and Exchange Commission v. James M. Donnan, III, et al., Civil Action No. 1:12-CV-02831-ODE (N.D.Ga. August 16, 2012)
SEC Charges College Football Hall of Fame Coach in $80 Million Ponzi Scheme
The Securities and Exchange Commission announced fraud charges against James M. Donnan, III, and Gregory L, Crabtree for allegedly perpetrating a Ponzi scheme. Donnan resides in Athens, Georgia, and Crabtree resides in Proctorville, Ohio. The complaint also names two of Donnan's children, Jeffrey Todd Donnan and Tammy L. Donnan, and his son-in-law, Gregory K. Johnson, as relief defendants.
According to the SEC's complaint filed yesterday in federal court in Atlanta, between at least August 2007 and mid-October 2010, Donnan and Crabtree offered and sold high-yielding, short-term (2-12 months) investments in GLC Limited, a West Virginia-based entity, that promised annualized effective rates of return ranging from 50% to 380%, paid to investors in monthly or quarterly installments or in a single one-time payment. Donnan and Crabtree raised a total of approximately $80 million from ninety-seven investors, many of whom were solicited by Donnan using contacts he made as a sports commentator and former college football coach. 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. Donnan typically told investors their money was being used to purchase specific items of merchandise that was often presold, so there was little to no risk to investing in any deal.
However, the SEC alleges that in fact, GLC Limited was a Ponzi scheme. Only about $12 million was actually used to purchase leftover merchandise, and the remaining funds were used to pay fake returns to earlier investors or stolen for other uses by Donnan and Crabtree, including steering money to the relief defendants. Donnan's and Crabtree's offering of GLC securities was not registered with the SEC as required under the federal securities laws.
The complaint alleges that, based on this conduct, Donnan and Crabtree violated Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and the assessment of civil penalties against them. The SEC also claims that the relief defendants were unjustly enriched by Donnan's actions and should disgorge the investor monies they received.