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Jun 16, 2010

Civil Court Orders Former Racer John Donnelly To Pay $3.9 Million In Ponzi Scheme, Orders "Investors" Who Made Money To Return It

By Michael Gougis

A U.S. District Court judge has approved a final judgment against a former racer who ran a Ponzi scheme that burned fellow racers as well as their friends and family members.

Under terms of the civil judgement, John M. Donnelly, who raced with Army of Darkness in the WERA National Endurance Series, has now been ordered to pay the court including interest $3,929,003.

However, that amount is not in addition to the $5.435 million Donnelly was ordered to pay in restitution when he pleaded guilty last year to criminal charges of wire fraud, securities fraud, fraud in connection with futures contracts, and impeding administration of internal revenue laws, and was sentenced to 90 months in prison.

The civil court's action provides another mechanism by which federal authorities can assist investors who lost money in Donnelly's schemes to recover some of their lost assets.

Donnelly, of Charlottesville, Virginia, ran an investment scheme that promised investors returns of up to 22%. Prosecutors say that Donnelly never actually invested the money at least $11 million but merely used new investments to pay off claims for disbursement, and paid himself more than $1 million in fees and salaries in the last three years of the operation.

In addition to naming Donnelly and "three entities that he controlled Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp." to return the money, the judgment also identifies Blue Logic Operating Partners LP and Nadia Capital Operating Partners LP as "relief defendants."

In legal terms, a relief defendant is "a person or entity who has received ill-gotten funds or assets as a result of the illegal acts of the other named defendants."

The SEC pointed out in a statement that in this case, its complaint "does not allege that the relief defendants committed violations of the federal securities laws."

Donnelly's wife, Deborah, was named as a relief defendant and ordered to "relinquish her interest in certain assets and to pay a portion of the proceeds from the sale of the Donnelly's home towards the restitution order in the criminal case," the SEC said.

In addition, the SEC sought and the court agreed to add long-time Roadracing World contributing writer (he's listed as the Wild Card Editor on the masthead) Sam Fleming and his company Fleming-AOD, Inc., as relief defendants. Fleming and Fleming AOD consented to the court order, which requires them to pay $613,617 plus interest of $65,717.89.

In a statement, Fleming, who voluntarily turned Donnelly in to federal investigators and cooperated in their investigation, said:

"Donnelly is a sociopath who pled guilty to defrauding his friends and I am proud that I helped bring him to justice. My company 'banked' with Donnelly for over 10 years and made a regular series of deposits and withdrawals of what we thought were earnings. I am happy to return funds to other victims who did not receive all of their principal back from his scheme."

All of the money recovered will be distributed to harmed investors through the restitution fund established in the criminal case, the SEC said.