The late Dr. Stephen Fennell, a frequent golf partner of Donnan’s at an Athens country club, did invest $450,000 in a company Donnan was touting, GLC Ltd., and that company did turn out to be a Ponzi scheme, United States Bankruptcy Judge James P. Smith wrote in a decision filed Thursday in the Middle District of Georgia bankruptcy court.
But lawyers for the doctor’s widow, Valerie Fennell, failed to prove Donnan knew he was asking Fennell, battling cancer in 2010, to participate in a Ponzi scheme, Smith wrote. Fennell died May 30, 2011.
“The court rejects Plaintiff’s argument that proof of the Ponzi scheme alone, without proof of Donnan’s knowing participation therein, is sufficient to supply the element of intent required under (applicable federal law),” Smith wrote.
In a Ponzi scheme, money from later investments is used to pay earlier investors until the pyramid of investments falls apart.
GLC filed for bankruptcy in 2011, and Donnan and his wife Mary soon did the same.
Smith’s ruling cheered lawyers for Donnan, who still faces heavy federal criminal charges in connection with the GLC bankruptcy.
In April, a federal grand jury indicted Donnan and GLC owner Greg Crabtree on 85 criminal counts, alleging the two conspired to commit mail fraud and wire fraud by deceiving investors into investing into the GLC Ponzi scheme.
Donnan, UGA’s head football coach from 1996 to 2000, has entered a not guilty plea to the charges. Donnan was one of the early investors and reaped millions in profits from his investments in the company. He also persuaded other investors, including several prominent sports figures, to sink millions into the scheme.
Between 2007 and 2010, some 103 people and companies, including Dr. Fennell, invested about $81 million in GLC. In that same span, GLC bought about $11 million worth of goods, had sales of about $6 million, and paid investors more than $70 million, according to Smith’s ruling.
GLC listed debts of about $27 million when the company filed for bankruptcy in 2011, including millions owed to investors.
Donnan and his family profited handsomely from GLC before the company went belly-up. He and his family invested a little more than $6 million and got $14.6 million back, a profit of about $8.6 million. Donnan also got more than $2 million in commissions for the deals he made with other investors, the federal bankruptcy judge noted.
But Donnan has maintained that when he persuaded others to invest, he thought he was sharing his good fortune with them – not deceiving them into a Ponzi scheme – and should be counted as one more victim of the Ponzi scheme.
The bankruptcy judge said that evidence presented by Fennell’s lawyers did not prove otherwise, including documents Donnan prepared for some of the agreements he solicited for GLC.
“In any event, all of the documents make reference to specific product deals and there is simply nothing in these documents that would suggest that Donnan knew that the underlying deals were fictitious,” Smith wrote.
“Plaintiff has failed to establish that Donnan knowingly participated in the GLC Ponzi scheme.”
Donnan testified that he knew little of the buying and selling part of GLC, which started out as a legitimate inventory liquidation business, buying and selling consumer products, for example patio furniture, Smith noted.
But the company became insolvent in 2008, and after that, “GLC was more in the business of bringing in investment capital than producing income from sales,” the judge wrote. “Most of the money from investors was used to pay other investors, rather than to purchase inventory or create sales.”