J. David Creditors’ Gripes Criticized : Magistrate OKs Fee Payments for Trustee Metzger’s Aides

A federal magistrate told J. David & Co. creditors Friday that they should have scrutinized the affairs of J. David (Jerry) Dominelli as arduously as they are “carping” on the trustee in charge of the bankrupt La Jolla investment firm.

“It’s a shame that the same (examination) directed at the trustee by the creditors wasn’t directed at Mr. Dominelli,” said U.S. Magistrate Harry R. McCue.

McCue’s comments were made during a hearing to determine whether trustee Louis Metzger’s lawyers and accountants should be paid $206,507 in fees and expenses for their work from December through February.

McCue, sitting in for U.S. District Judge J. Lawrence Irving, approved the payment, despite the creditors’ committee’s contention that the fees not be paid.

Dominelli complained in a declaration filed in court that, had he known the bankruptcy estate might be liable for any back federal income taxes he failed to pay, he would not have signed a statement in March admitting he had fraudulently evaded about $10.3 million in taxes.

In a declaration filed late Thursday, Dominelli said he “expressly understood that I alone would be solely responsible for any tax liability that resulted from my statement and plea.”

Metzger told former J. David investors and creditors two weeks ago that any claim by the Internal Revenue Service could take priority over other claims against the estate. The IRS has not yet made such a claim, however, and McCue on Friday labeled Dominelli’s declaration “spurious.”

Assistant U.S. Atty. Robert D. Rose, who negotiated Dominelli’s plea agreement statement, said Friday that Dominelli “pleaded guilty because he was guilty, and he had no better alternative.”

In court, McCue criticized creditors’ committee counsel Richard Wildman for filing the declaration on Dominelli’s behalf. Dominelli, who is in federal jail, telephoned Wildman on Wednesday, according to the filing, and wanted to “express my concern” about the IRS liability issue.

Wildman asked rhetorically whether the “creditors are any better off under the trustee than they were under Mr. Dominelli.”

McCue then harshly criticized Wildman and the creditors’ committee for their lack of “appreciation of what the trustee has done. I am troubled deeply by this constant carping on expenditures of dollars for which there is no (direct) return.”

Metzger has recouped only about $11.4 million by selling various J. David assets, although an additional $5.3 million is expected to be obtained soon. But legal fees (which have been dramatically reduced in the past year), mortgages and administrative fees will trim the net benefits to less than $10 million.

Much of Metzger’s legal fees have been spent attempting to retrieve assets that investors and former employees have refused to return, the trustee has said. In some cases, those assets have been recouped only after lengthy and expensive legal negotiations.

Dominelli, who represents himself in the J. David & Co. bankruptcy proceedings, was in court Friday and, as he has in all of the civil hearings, sat at the same table as the creditors’ committee.

Dominelli pleaded guilty to four felonies in March and faces as many as 20 years in prison when he is sentenced next month.

He has admitted that he and his firm garnered about $200 million from 1,500 investors and that he fabricated the foreign currency trading profits that investors thought were being generated.