Dominelli’s Attorney Is Indicted : Athay Faces Federal Tax Evasion Charges for 1978-80

D. Gilbert Athay, the attorney who last month helped fashion a plea bargain agreement for former businessman J. David (Jerry) Dominelli, has been indicted by a federal grand jury in Salt Lake City on charges of failing to file income tax returns.

The three-count indictment, issued Wednesday and unsealed Friday, accuses Athay of not filing federal tax returns in 1978, 1979 and 1980.

An innocent plea was entered for Athay by his attorney, Max Wheeler, at an arraignment Friday before U.S. Magistrate Ronald Boyce. Each misdemeanor count carries a penalty of one year in prison, up to $10,000 in fines and reimbursing the government for the costs of prosecution.

The indictment alleges that Athay had income of $44,403 in 1978, $53,739 in 1979 and $78,285 in 1980, but filed no federal income tax returns in any of those years.

Athay could not be reached for comment. But Wheeler said that Athay is “philosophical” about the charges.

“I don’t know why they decided to indict; it was unnecessary,” said Wheeler, a former federal prosecutor. He added that the typical procedure in misdemeanor failure-to-file tax cases is to charge a defendant through a federal information, or complaint.

“An indictment sounds (worse) to the public than an information, and they want to make as much noise as they can,” Wheeler said.

Dominelli, with Athay at his side, pleaded guilty last month in federal court here to four felony charges, one of which was an admission that the J. David & Co. founder had failed to pay more than $10 million in federal income taxes he owed in 1982.

Dominelli, who is still represented by Athay, is scheduled to be sentenced June 24. He faces up to 20 years in prison and fines of up to $107,000.

Athay’s case was investigated by the U.S. Department of Justice’s tax division, not the U.S. attorney’s office in Salt Lake City, because of a possible conflict of interest--Athay represented defendants in several cases in federal court in Salt Lake City, according to U.S. Atty. Brent Ward.

Many of Athay’s clients have been controversial. In addition to Dominelli, Athay represented Jerome C. Gatto, a Utah businessman who has been accused of various investment and business frauds by federal authorities.

Gatto and an associate, Joseph C. Bonanno Jr., son of reputed Mafia chief Joseph (Joe Bananas) Bonanno, offered to loan Dominelli $125 million one year ago in order to meet the demands by J. David & Co. investors to withdraw their funds.

To secure the loan, Dominelli paid Gatto and Bonanno $125,000 in “up-front fees.”

But federal authorities contend that the deal was designed to defraud the desperate Dominelli and that Gatto and Bonanno had no intention of ever loaning Dominelli the money.

Dominelli paid the $125,000 fee to Gatto and Bonanno a year ago today. That same day, Dominelli, facing certain imprisonment for not cooperating with the trustee in charge of his bankrupt La Jolla investment firm, fled to the tiny Caribbean island of Montserrat.

Athay later was involved in returning the up-front money to Dominelli.

The loan was investigated by the federal grand jury in San Diego and, because Athay represented both Gatto and Dominelli, Assistant U.S. Atty. Robert D. Rose in July attempted to have Athay disqualified from the J. David & Co. case.

Dominelli, however, insisted on keeping Athay.

Later that month, a federal judge in Utah ordered Athay to step down as counsel for Gatto, who was charged with concocting a fraudulent scheme to buy a gold-mining company in Arizona. The judge ruled that a potential conflict existed because Athay might be called on to testify in San Diego against Gatto.