Disclosure Expanded in Suits Against J. David’s Ex-Law Firm

A Superior Court judge on Friday ruled that there is “substantial probability” that former investors in J. David & Co. will prevail in their claims of fraud against the bankrupt investment firm’s former law firm, Rogers & Wells.

In a ruling allowing wider financial disclosure, Superior Court Judge Ben W. Hamrick ordered the law firm to submit an audited financial statement, and ordered three of its current and former attorneys to submit sworn personal financial statements. Hamrick set a May 13 trial date for suits brought by six of the former investors who are at least 70 years old. Under state law, older plaintiffs are given earlier trial dates if they request them.

The attorneys who must submit sworn financial statements include Mitchell Lathrop, partner-in-charge of Rogers & Wells’ San Diego office; Don Augustine, attorney for the local Rogers & Wells office, and Norman Nouskajian, formerly with Rogers & Wells. Nouskajian was the firm’s lead lawyer at J. David.

The documents, which will be filed under seal, eventually will be reviewed by a judge who will oversee settlement of the civil litigation.

Lathrop would not comment on the ruling; neither Augustine nor Nouskajian could be reached for comment.

More than 330 J. David investors have alleged fraud and securities violations in lawsuits filed against Rogers & Wells and several of its attorneys. Total damages in those suits could exceed $122 million, but the New York-based law firm, headed by former U.S. Secretary of State William Rogers, has only $70 million in insurance to cover such claims, according to sources close to the case.

“That’s what makes the early trial date so interesting,” said one attorney familiar with the lawsuits. “The whole name of the game when you defend is time, because, to an insurance company, time is money. That $70 million in insurance would normally be earning interest for years before a trial.”

A request by the plaintiffs for the other defendants, including the accounting firm of Laventhol & Horwath, to produce financial statements was denied by Hamrick.

Hamrick’s rulings were perceived as surprise developments by several sources familiar with the J. David imbroglio.

“It’s a substantial blow to the defendants,” said one attorney familiar with the case. “They had argued that they were not part of the case; that they were hoodwinked just like everybody else.”

According to confidential Rogers & Wells documents obtained by The Times, the law firm and several of its attorneys knew that J. David (Jerry) Dominelli’s investment was operating illegally because his clients’ accounts were not registered as securities with the government.

In January, 1983, more than one year before J. David was forced into bankruptcy, a Rogers & Wells partner in London urged the firm’s local office to tell Dominelli to “cease trading” his foreign currency accounts, known as interbank. The attorney also suggested that Dominelli return clients’ money because he was selling illegal and unregistered securities.

The local Rogers & Wells office apparently did not make that strong a recommendation to Dominelli, although documents reveal that they did inform him, in a four-page memo dated Feb. 2, 1983, that his interbank accounts should be registered as securities.

However, the next day, attorney Don Augustine, who had written the four-page memo, met with the corporate counsel for the state Department of Corporations to negotiate the state’s investigation of J. David. Augustine, according to confidential Rogers & Wells memos, argued that the J. David accounts were not securities and therefore were exempt from registration.

State authorities, apparently relying on Augustine’s claims, dropped their J. David investigation.

Had the state inquiry into J. David continued, investigators may have prevented much of the ensuing fraud: The majority of the $200 million that was received from J. David’s 1,500 clients was invested after the state called off its investigation.

Lathrop, according to the documents, suspected in early 1983 that Dominelli was running a “Ponzi scheme,” in which new investors’ money is needed to pay off existing clients. Lathrop ordered a secret, internal investigation of J. David to determine “whether or not another senior individual in the firm is either knowingly or unknowingly aiding such an effort,” according to the documents.

Although the documents do not name him specifically, it is believed that the attorney was Nouskajian.

Rogers & Wells did not officially resign from J. David’s interbank work until June 2, 1983, and Nouskajian continued to work extensively on interbank, according to former J. David executives.

Nouskajian, according to former associates, was planning to become a full-time J. David staff member just prior to the firm’s collapse. Four weeks before the company was forced into bankruptcy, however, Nouskajian withdrew about $80,000 from his own J. David interbank account.

Nouskajian was placed on a leave of absence by Rogers & Wells a few months after J. David’s collapse in February, 1984. He officially resigned from the firm in July of that year.

Dominelli is serving a 20-year federal prison sentence after pleading guilty in March to three counts of fraud and one count of income tax evasion.

The federal grand jury that indicted Dominelli has been dismissed, but another grand jury is still investigating the case, according to federal prosecutors.

Nouskajian and former J. David executives Mark Yarry and Nancy Hoover have been identified by sources close to the case as possible targets of that investigation.