J. David (Jerry) Dominelli, who fleeced trusting clients from La Jolla to Newport Beach, on Thursday pleaded guilty to four felony charges in the collapse of his J. David & Co. investment firm, which prosecutors now say lured about $200 million from 1,500 investors between 1979 and early 1984.
The 43-year-old Dominelli, who spent his investors' money on an opulent life style that included several expensive homes, exotic sports cars and thoroughbred horses, faces up to 20 years in prison and fines of up to $107,000.
For years, Dominelli urged investors to share his fast-lane life style with promises of annual returns of 40%, but on Thursday in court he was described by bankruptcy officials as a man who "didn't even know how to balance his checking account."
Dominelli pleaded guilty to two counts of mail fraud, one count of bankruptcy fraud and one count of tax evasion for crimes before and after the Feb. 13, 1984, forced bankruptcy of his La Jolla investment firm. The tax charge claims that Dominelli reported only $294,507 of his $21.6 million in taxable income in 1982.
He will be sentenced on June 24 by U.S. District Judge William B. Enright. Federal prosecutors have recommended that Dominelli serve his time in the Federal Correctional Institution at Pleasanton, about 40 miles east of San Francisco.
Dominelli stood expressionless as Enright read aloud portions of Dominelli's 13-page statement explaining the guilty pleas. Still unable to communicate effectively as a result of a stroke suffered Oct. 2, Dominelli answered a handful of questions from Enright with only one or two words.
Dominelli's confession acknowledges for the first time that his La Jolla investment firm was a fraud from its modest beginnings in June, 1979, until its well-publicized failure in February, 1984.
"I carried out a scheme to defraud investors by means of my J. David companies," Dominelli's statement read. "I did so knowingly and willfully."
He admitted that he had fabricated his profitable track record as a broker and money trader, and conceded that he had "commingled investors' funds with my own funds and diverted millions of dollars to my personal use."
The government for the first time Thursday disclosed that Dominelli lured a total of $200 million from 1,500 investors between June, 1979, and February, 1984--twice as much money as previous estimates. About 60%, or $120 million of that, was returned to investors.
$80 Million Lost
About $80 million remains unaccounted for and is considered lost. Nearly 1,000 investors are considered to be victims, according to Assistant U.S. Atty. Robert D. Rose, who led the government's two-year investigation of J. David.
Included among the victims are wealthy investors from La Jolla to Newport Beach to Palm Springs, as well as several businesses that deposited huge sums of their operating funds into J. David.
San Diego Mayor Roger Hedgecock is among those who felt the aftershocks of the J. David collapse. Hedgecock, Dominelli, former J. David executive Nancy Hoover and political consultant Tom Shepard have been indicted for conspiracy and perjury, and are charged with funneling hundreds of thousands of dollars in illegal campaign contributions into the 1983 Hedgecock mayoral campaign.
Hedgecock's first trial ended in a hung jury last month after an 11-1 vote for conviction. His retrial is scheduled May 8.
Dominelli, Hoover and Shepard's preliminary hearing is scheduled May 7.
Lavish Life Style
J. David & Co. funds, the government said in its plea agreement filing, were spent by Dominelli on his lavish life style, extraordinary commissions to his money raisers, on other business ventures, extravagant office furnishings and equipment, expensive real estate, political candidates and causes and generous contributions to non-profit charities and civic groups.
Previous government estimates had pinned the total invested in J. David at about $100 million.
Under terms of Dominelli's plea agreement--which ends the U.S. government's case against him--the former financier agreed to testify under oath before the ongoing federal grand jury that is still investigating other people connected to J. David & Co.
Dominelli also agreed to "cooperate fully" with bankruptcy trustee Louis Metzger.
In exchange for his guilty plea, federal prosecutors agreed to drop 23 remaining charges in the 25-count grand jury indictment charging Dominelli with fraud and perjury.
If Dominelli fails to adhere to the plea agreement or if he lies in his testimony before the grand jury, he could be subjected to further criminal charges, including perjury and obstruction of justice.
Rose maintained that although Dominelli will no longer be under investigation, the grand jury will continue to probe J. David. Sources close to the case have said that other targets may include former J. David executives Hoover and Mark Yarry, and one or more attorneys with the local law firm of Rogers & Wells, which handled much of J. David's foreign currency trading activity.
Throughout the scheme, Rose said in the plea agreement, the J. David companies "were insolvent and could not have satisfied their contractual obligations without an influx of new investors' funds," a typical "Ponzi" scheme.
Investigators and accountants from the Internal Revenue Service and the Federal Bureau of Investigation derived the $200-million figure in the past month while completing their computerized analysis of 27 boxes of J. David documents that were recovered last summer from Swiss authorities.
Meanwhile, local contractor Parin Columna, who was charged with Dominelli on eight counts of bankruptcy fraud and aiding and abetting, on Thursday pleaded guilty to one misdemeanor count of criminal contempt of court.
Columna's guilty plea is for assisting Dominelli during the ex-financier's flight to the Caribbean island of Montserrat in April to avoid imprisonment.
Columna's sentencing was set for May 20, although Michael J. McCabe, Columna's attorney has said that the government will recommend that the contractor be given probation and no prison sentence.
'Had to Call Bank'
Earlier Thursday, attorneys and accountants for J. David & Co. bankruptcy trustee Metzger made a status report to U.S. District Judge J. Lawrence Irving that said Dominelli "didn't even know how to balance his checking account."
Instead, Dominelli "had to call the bank everyday to determine his bank balance," said George Kilcrease, partner in the San Diego office of Touche Ross & Co., Metzger's accountancy firm.
"When you cut through everything," said trustee attorney Frederick R. Wirtz, "(J. David & Co.) basically was people writing a check to Jerry Dominelli and then him doing whatever the hell he wanted to do with the money."
Coincidentally, Dominelli's guilty pleas and Metzger's report occurred one year to the day after Irving had officially placed J. David's seven primary businesses into bankruptcy liquidation. Disgruntled J. David investors forced the investment firm into involuntary bankruptcy on Feb. 13, 1984, by filing a petition. Irving's order one year ago approved that petition.