San Diego’s Strange Characters Make It Fraud’s Court Jester

If Orange County is king of fraud, then San Diego is certainly the court jester--a silly caricature where scam artists routinely bungle their way to celebrity status.

Years after they have disappeared from the limelight--and sometimes from the country--their names are still familiar to their victims and the general public.

C. Arnholt Smith, Joe Bello, Walter Wencke and J. David (Jerry) Dominelli have etched their names into the community’s lexicon almost as cliches.

Better Publicity

“It may seem like there’s more fraud here because our swindlers are more notorious and they are better-publicized,” said Robert D. Rose, chief of the U.S. attorney’s fraud division in San Diego.

Still, the California attorney general has based its fraud investigation unit in San Diego, and the Defense Department’s Criminal Investigative Service opened an office here last year.

“We don’t have to be the worst in order to know it’s pretty bad here,” said Rose.

The latest in a long line of well-publicized scandals to rock San Diego’s social set was the J. David & Co. imbroglio, where about 1,500 investors pumped $200 million into the investment firm, which promised a 40% return.

It involved investors from the wealthy communities of La Jolla, Newport Beach, Rancho Santa Fe and Palm Springs and, as the complicated Ponzi scheme unfolded, even San Diego Mayor Roger Hedgecock.

Hung Jury in Mayor’s Trial

Hedgecock’s first trial on charges of perjury and conspiracy ended in a hung jury, 11 to 1 for conviction. His second trial--in connection with allegations that he accepted illegal campaign contributions from J. David and its top executives--begins this summer.

The city’s most infamous financier is C. Arnholt Smith, once this city’s most powerful mover and shaker. He was named Mr. San Diego in 1966 by the Chamber of Commerce and counted President Nixon among his close friends. Smith is 86 years old and is serving a one-year jail term for felony grand theft and misdemeanor income tax evasion--six years after his conviction and a dozen years after his financial empire crumbled and his U.S. National Bank was seized by federal regulators.

Although other white-collar criminals weren’t as respectable as the powerful Smith, they did have their legions of loyal followers:

- Many of the 1,200 investors in MB Financial believed in President Joseph Bello until the day he went to jail in 1979, one year after the collapse of his insurance premium investment firm.

Darling of Senior Citizens

- Philip L. Jauregui was the darling of San Diego senior citizens in the late 1970s and early 1980s. With promises of annual returns of as much as 40%, Jauregui’s Coastal Equities real estate investment firm attracted about $50 million from 2,500 clients before federal prosecutors last year finally pieced together documents proving the firm was a massive Ponzi scheme.

- Walter Wencke seemed a rising star of sorts in San Diego during the late 1960s and 1970s. But Wencke, a Harvard Law School graduate and labor attorney who was defeated in a bid for Congress in 1968, has been a fugitive since 1979. He disappeared just before he was to start a five-year prison term for defrauding investors in a multimillion-dollar wine grape syndication business based in the San Joaquin Valley.

Other Cases

There have been other, less notorious, cases of alleged fraud and deceit recently in San Diego:

- John Milton Charles, a La Jolla socialite, last year was accused of defrauding investors of more than $1 million in a gold-mining scheme.

- Gerry G. Sonido Jr. in April was indicted by a federal grand jury and charged with conspiracy and filing false income tax claims after allegedly promising more than 400 clients--most of them Filipino-Americans--tax refunds totaling nearly $1.1 million. Many of his clients’ tax returns ended up in trash containers, prosecutors allege.