$6.5 Million Is Recovered From J.David : Trustee Unsure How Much More Can Be Located for Investors

Only about $6.5 million has been recovered from the sale of assets belonging to bankrupt J. David & Co., the once high-flying La Jolla investment company that attracted between $60 million and $85 million in investor funds.

Eleven months after a group of investors forced the firm into bankruptcy, court-appointed bankruptcy trustee Louis Metzger says he believes that he has identified almost all of J. David’s assets and expects to soon garner an additional $800,000 from the sale of seven pieces of property.

In an interview this week with The Times, however, Metzger would not predict how much money would eventually be returned to J. David’s estimated 1,000 investors.

Metzger has said that he could recover between $30 million and $40 million.

That previous estimate is now uncertain, largely because of the unresolved status of between $25 million and $30 million in so-called preference payments--funds paid out to J. David investors during the 90 days before the firm’s bankruptcy.

Although federal law requires those funds to be returned to the bankruptcy trustee, many investors have refused to do so. Some former investors contend that typical bankruptcy laws do not apply because they deposited and withdrew their money from J. David much as they would have from a bank.

Only 150 investors have so far accepted an earlier proposal by Metzger that they return a portion of the funds--from 60% to 88%, depending on how soon the money was turned over. The bankruptcy estate received only about $2.9 million in cash and notes payable from that offer, Metzger said.

An additional 200 investors have refused to return their preference payments, and 30 investors who received large sums in the firm’s waning days remain unidentified, Metzger said. Lawsuits seeking a return of the funds will begin in earnest by month’s end, he added.

Metzger has spent $2.5 million to retrieve the $6.5 million, leaving a net balance for the estate of $4 million. That money is now in a financial institution, drawing interest, he said.

Legal fees totaling $1.08 million make up much of the expenses, although Metzger insisted that he has “greatly reduced” the bankruptcy estate’s legal expenses.

Other costs, according to Metzger, include $450,000 in administrative expenses, $350,000 in accounting fees, $325,000 for storage and maintenance of existing assets, $175,000 in costs associated with settling outside lawsuits and $125,000 in investigative fees.

“We’ve made excellent progress this first year, and we’re now ready to move to new areas,” Metzger said. He said he now will aggressively pursue lawsuits and identify “insider payments” made to key employees during the year before J. David’s forced bankruptcy.

The 68-year-old retired Marine lieutenant general would not, however, predict how long the bankruptcy case will last. Metzger also is the bankruptcy trustee of MB Financial, a San Diego firm that bilked nearly $21 million from 1,200 people in an insurance premium scheme. Those bankruptcy proceedings will probably wind up next spring, about six years after the firm was declared insolvent.

J. David (Jerry) Dominelli, founder of the J. David firm, is undergoing psychiatric tests to determine whether he is competent to stand trial on a 25-count federal grand jury indictment alleging bankruptcy fraud and perjury. A report is due Feb. 15.

Dominelli also faces a 14-count county grand jury indictment for conspiracy and perjury in connection with San Diego Mayor Roger Hedgecock’s 1983 election campaign.