Firms Settle With J. David Investors : Agreement Tied to Suit Against Failed Company’s Lawyers
A Superior Court judge Thursday approved a $3.9-million settlement between 334 former J. David & Co. investors and three professional firms once connected to the fraud-infested La Jolla investment company.
Presiding Judge Donald W. Smith announced his ruling over the strong objections of attorneys representing Rogers & Wells, J. David’s former law firm, which isn’t included in the settlement.
Rogers & Wells remains the target of several lawsuits brought by former investors and seeking more than $100 million in damages.
Brad Phillips, arguing for Rogers & Wells, objected to the agreement’s caveat that the settlement payments would be decreased by judgments that investors may later win against other parties, most notably Rogers & Wells.
“The issue is whether . . . they would be liable for nothing,” Phillips said.
Included in the settlement of the investors’ lawsuits are Prudential-Bache Securities, which once employed J. David founder J. David (Jerry) Dominelli, and Rollins, Burdick, Hunter, an insurance firm in Northern California that bonded J. David against fraud by outsiders and by employees.
A law firm in San Francisco was also included in the settlement.
Investors had alleged that Prudential-Bache should have publicly rebuked Dominelli’s widely circulated, but false, claims that his trading record was profitable during his tenure at the brokerage firm.
In addition, some investors charged they had based their decision to invest in J. David on Rollins, Burdick’s investigation of the firm.
Phillips said Thursday that he may appeal Smith’s ruling.
Joseph W. Cotchett, representing former J. David investors, said Rogers & Wells was “saying to the court: ‘We have big troubles in this case . . . please don’t let these people out (of the lawsuits). Let them share.’ ”
Judge Smith dismissed Rogers & Wells’ objections because the potential liability of the settling defendants “is as close to zero as you can get. They’re buying their peace . . . in a reasonable and rational manner.”
Smith told Rogers & Wells that if the plaintiffs should win their lawsuits, they would “get nothing” from Prudential-Bache and Rollins, Burdick.
In a related development, attorney Michael J. Aguirre, who represents another group of former J. David investors who have also sued Rogers & Wells and Prudential-Bache, said Thursday that he had reached an agreement to settle with Prudential-Bache. Terms were not disclosed.
Former investors in J. David, which received $200 million from 1,500 clients over a five-year period, have sued various professional firms in an attempt to recoup some of their lost funds.
The local office of Rogers & Wells, which reportedly has an insurance fund of $60 million to $70 million to cover potential lawsuit judgments, was the attorney for J. David’s foreign currency trading activity.
The law firm’s senior officials in London and New York, however, warned their San Diego counterparts in January, 1983, that Dominelli’s trading should be halted and the investors’ monies returned because the accounts had been illegally offered and sold to clients as unregistered securities.
Despite the internal warning, Rogers & Wells lawyers in early 1983 convinced state regulators that J. David’s accounts did not have to be registered as securities because the accounts were individual and discretionary, with each investor determining how the money would be traded. In truth, the accounts were pooled and Dominelli alone decided the fate of the funds.
Dominelli did very little actual trading; what trading he did was largely unprofitable.
Dominelli could be sentenced to as many as 20 years in prison on June 24 for pleading guilty in March to three counts of fraud and one tax evasion charge.
A federal grand jury continues to investigate other former executives and professionals connected to J. David, according to authorities.