MACON, Ga. — A proposed settlement between former Georgia football coach Jim Donnan and a bankrupt firm that accused him of recruiting fellow college coaches to invest in a Ponzi scheme is in jeopardy Monday after a judge raised concerns about the deal.
U.S. Bankruptcy Judge James Smith said he was unlikely to approve the $5.5 million settlement Donnan brokered with a West Virginia-based liquidation company called GLC Ltd. because he said it gave short-shrift to other parties who filed claims against the ex-coach.
“I’m not sure I can bless this,” Smith said, who didn’t immediately rule.
Donnan and his wife agreed to transfer cash, stocks and other assets to settle claims he profited by convincing investors, including a host of high-profile coaches, to pump money into the company. 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 $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 said during the hearing that what little records the company kept showed Donnan played a key role in its growth, becoming the second major investor to the company in August 2007 when he pumped in $150,000. Over the years, Donnan invested about $5.8 million but was paid out $13.2 million.
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.
“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. And Donnan said he wanted to put the case behind him.
“I’m hoping to finish this thing up,” he said before the hearing.
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