‘Message’ Sent on J. David Case : Judge Wants Action Expedited on New Indictments

A federal judge Friday expressed his frustration that federal prosecutors have indicted only J. David (Jerry) Dominelli in the ongoing criminal investigation of J. David & Co.

U.S. District Judge J. Lawrence Irving sent what sources described as a “clear message” to the U.S. attorney’s office to bring charges against others connected to the fraud-infested investment firm.

Irving ordered that the trustee in charge of liquidating J. David turn over to federal prosecutors “all documents of relevance” he now has in his possession or may receive in the future.

Because Irving is aware that trustee Louis Metzger has already turned over all available documents to the U.S. attorney’s office, the order was perceived by parties close to the case as a signal to prosecutors that the judge is “frustrated” that only Dominelli has been indicted in the nearly 2-year-old case.

Also on Friday, Metzger testified that former J. David investors and creditors have filed claims totaling $1.75 billion--an astonishing figure given that the firm attracted only $200 million in investments. Many of those claims are duplicates from investors who have filed the same claims against several J. David subsidiaries, Metzger said. In addition, several of the claims may be invalid, he added.

Through his order, Irving is “sending out a clear message” that he “wants things to progress” more rapidly in the criminal prosecution of former J. David officials as well as those outside attorneys and other professionals who may have participated in the fraud, according to one attorney close to the case. Officially, Irving has been involved only in the civil aspects of the J. David case; U.S. District Judge William B. Enright handled the criminal case against Dominelli.

During a hearing to approve Metzger’s legal, accounting and administrative expenses, Irving on several occasions asked about the legal and financial status of former J. David official Nancy Hoover and attorneys who once worked for the firm.

In an uncommon line of questioning, Irving asked Frederick Wirtz, Metzger’s attorney, if he knew whether any former J. David executives or outside attorneys had been granted immunity from prosecution in exchange for their testimony to the federal grand jury that is investigating the case.

Wirtz, who has nothing to do with the criminal aspects of the case, said he was not aware of any government offer of immunity.

Irving also ordered the trustee to turn over any future deposition from Hoover, Dominelli’s one-time live-in companion, to the U.S. attorney’s office.

After issuing the order, Irving said abruptly, “That’s all I intend to say on the topic, at this point.”

Assistant U.S. Atty. Robert D. Rose, the government’s sole prosecutor in the complicated and far-flung case, said Friday that the grand jury probe of J. David is continuing.

He said that Metzger has cooperated with prosecutors “from the beginning” and that “if he found wrongdoing, he would not hesitate to bring it to the attention of law enforcement.”

Rose was not at Friday’s hearing and, because of that, declined to comment on the implications of Irving’s ruling.

Dominelli is the only player in the J. David saga to have been charged with a crime. He was sentenced in June to 20 years in federal prison after pleading guilty to three counts of fraud and one count of income tax evasion.

Among the people reportedly under investigation by the grand jury are Hoover, former executive Mark Yarry and Norman Nouskajian, an attorney with the Rogers & Wells law firm who counseled J. David.

Nouskajian’s sworn deposition--taken by attorneys suing various “third parties” to recoup their clients’ lost investments--fills four volumes of transcripts and details his involvement in the failed La Jolla investment firm.

Hoover’s sworn deposition has not yet been taken, according to the former investors’ lawyers, because she would undoubtedly refuse to answer questions by asserting her Fifth Amendment protection against self-incrimination. That situation will continue as long as Hoover faces criminal charges involving campaign contributions to San Diego Mayor Roger Hedgecock, the attorneys said.

It has been 21 months since a group of disgruntled investors forced J. David into involuntary bankruptcy. But of the $80 million in actual losses incurred by investors, Metzger has retrieved only about $11 million.

“You’re a little bit short” of the $1.8 billion in claims, Irving jested with Metzger.

J. David & Co. attracted about $200 million from 1,500 investors with false promises of 40% annual returns. Including the non-existent paper profits, the maximum conceivable amount of funds would be about $300 million, prosecutors have maintained.

In his quarterly report to Irving, Metzger said that nearly half of the $110,000 in estimated monthly administrative expenses will be paid for from interest earned on retrieved J. David assets.

To date, Metzger has gained more than $881,000 from his settlement with Hoover. Under that settlement, Hoover received $220,359, although “all of that money” was used by Hoover to pay her attorneys’ fees, Metzger said in court.

More than $1.2 million has been secured from the sale of other properties that Hoover would have protested had a settlement not been reached, Metzger said.

About $500,000 is currently in dispute with an insurance company over J. David funds paid out on checks written by Hoover, Metzger said. Dominelli has produced two sworn affidavits about those funds--one statement claiming Hoover had no authority to sign the checks, the other swearing she did.

Dominelli’s Rancho Santa Fe estate will be lost to foreclosure if it isn’t sold by the end of the month, Metzger testified.

Metzger is asking $2.2 million for the house, but the best offer received so far has been $1.6 million. The trustee’s break-even price is $1.9 million, he said.

Nearly all of the fanciful and extravagant J. David assets have been sold and the funds are now on deposit in various money-market instruments, Metzger said.

For example, the last race horse in Dominelli and Hoover’s stable was recently sold at auction for $2,100, Metzger testified. The horse’s purchase price was $200,000.

Still unresolved is the status of $27 million to $29 million that was paid to investors in the 90 days before the bankruptcy--as well as funds paid that exceeded an investor’s total investment.

Metzger has filed 267 lawsuits seeking to recover those funds.

Irving on Friday said that he “wants to get” those cases to trial soon.

Metzger has also commenced litigation against former J. David “insiders” who withdrew funds within one year of the bankruptcy.