The United States Securities and Exchange Commission has officially announced it is investigating former Georgia head football coach Jim Donnan for “alleged violations of federal securities fraud.”
In a recent court filing in objection to Donnan’s personal bankruptcy court plan to reorganize his family estate, attorney David W. Baddley filed the following statement on behalf of the United States of America:
… the SEC staff anticipates that the SEC will file a substantial claim in this case based on potential remedies for alleged violations of the federal securities laws.
Last year Donnan filed for bankruptcy to protect his personal assets after he was accused by an Ohio company of perpetrating a wide-ranging Ponzi scheme that allegedly bankrupted the company while costing several high profile college coaches and former players millions of dollars in the process.
Donnan’s alleged scam was to lure investors to “loan” money to the Ohio company – GLC Limited – at annual interest rates of up to 70%. GLC has since claimed in its own federal court filings that the ensuing pressure to honor such loans initiated by alleged GLC representative Donnan bankrupted the company.
Think of GLC as Donnan’s own (alleged) piggy bank, with that bank bearing outrageous interest rates – set by Donnan – for his family and friends.
The alleged Ponzi may have also involved Dennis Franchione, Tommy Tuberville and former ESPN announcer and college football coach Mike Gottfried, as Donnan noted in a Jan. 19, 2012, bankruptcy court filing that Franchione, Tuberville and Gottfried “invested and brought in friends whom Jim did not know and had never met.”
One of those “friends” was Billy Gillispie, who “invested” millions in Donnan’s business venture allegedly via Franchione. After failing to recoup $1.9 million in “loans” attributed to Franchione’s alleged solicitations, Gillispie filed a claim for the same amount against Donnan’s family estate in the college football Hall of Famer’s current bankruptcy proceeding.
Donnan’s own handwritten notes, which can be seen in federal bankruptcy court documents, also indicate that Franchione received a substantial “commission” from Donnan – allegedly on behalf of GLC Limited – for luring Gillispie into business deals that may have never actually existed. GLC Limited, the Ohio company Gillispie allegedly “loaned” money to at annual interest rates up to 70%, is also now suing Franchione for $95,000 in “commissions” Franchione allegedly made from the transactions with the Texas Tech basketball coach.
This week in federal bankruptcy court Donnan agreed to give the United States Securities and Exchange Commission more time to investigate his alleged Ponzi scheme. Donnan’s concession followed an ominous filing by an attorney for the Securities and Exchange Commission on March 13, 2012, that included the following:
The (Donnan) Disclosure Statement provides that in 2007 – prior to becoming involved with GLC – the Debtors had a net worth in excess of $3 million. (Disclosure Statement at p. 3). It appears that the Debtors’ investments in GLC resulted in net profits of at least $7,352,838 (See footnote 3).
These net returns would have increased the Debtors’ net worth to more than $10 million. The Plan, however, offers less than $5 million in assets for distribution to unsecured creditors, and there is very little information in the Disclosure Statement about what the Debtors did with the substantial profits they received from GLC, and why more money is not available to pay creditor claims.
Failure to Address Possible SEC Claim. The current deadline by which the SEC must file a proof of claim in this case is March 27, 2012 (Docket No. 186).
Although the SEC’s investigation is still ongoing, the SEC staff anticipates that the SEC will file a substantial claim in this case based on
potential remedies for alleged violations of the federal securities laws. The amount sought for disgorgement of ill-gotten gains may likely exceed $13 million, and the claim may also include amounts for civil penalties and prejudgment interest. The Disclosure Statement fails to acknowledge the upcoming bar date or any potential for an SEC claim, including how such a claim would be classified and treated under the Plan.
The U.S. Securities and Exchange Commission and Donnan agreed Thursday to a 60-day extension – which awaits court approval – beyond the aforementioned March 27, 2012 deadline for the Feds to “file a substantial claim” against Donnan.
In other words, the U.S.A.’s investigation and prosecution of Donnan’s alleged Ponzi may just be beginning.