Agreement May Cost $40 Million : Suit Settlements Reached by Law Firm for J. David
Rogers & Wells, the prominent New York law firm that represented the fraud-ridden J. David & Co. investment firm, has agreed to pay as much as $40 million to settle more than 300 lawsuits brought by former J. David investors, it was learned Friday.
If approved by the court, it will be the largest settlement ever made by a U.S. law firm, according to sources close to the case.
The investors, whose lawsuits seek more than $120 million from the law firm, contend that Rogers & Wells aided the fraud by representing the investment firm’s founder, J. David (Jerry) Dominelli, even after it discovered that J. David & Co.’s foreign currency trading activity was illegal.
The investment firm is being liquidated, and Dominelli is serving a 20-year federal prison term.
The 22-page settlement agreement was submitted Friday morning to San Diego Superior Court Judge Ben W. Hamrick, who immediately ordered the settlement sealed and prohibited plaintiffs and defendants from discussing it. Hamrick is expected to rule on the settlement within 45 days, sources said.
Speculation has abounded in recent weeks that settlement of the lawsuits against Rogers & Wells and several of its current and former attorneys was imminent.
Negotiations to settle began in earnest in October after Hamrick ordered a May 13 trial date for six of the suits filed against Rogers & Wells by former J. David investors. He also ruled then that there was “substantial probability” that the former investors would prevail in their claims of fraud against the law firm.
Rogers & Wells, which reportedly was paid $900,000 for its work for J. David, has total insurance of less than $80 million, according to sources close to the case.
The settlement could total about $40 million, depending on a complicated formula contained in the sealed agreement, sources said. That would represent the largest amount ever paid by a law firm to settle claims growing out of representation of a client, according to the National Law Journal, a trade publication.
Rogers & Wells is headed by former U.S. Secretary of State William P. Rogers, who is now leading the blue-ribbon panel investigating the explosion last month of the space shuttle Challenger. Rogers personally participated in the settlement agreement, according to the National Law Journal.
Not included in the settlement are the law firms of Wiles, Circuit & Trembley in San Diego and Abramson & Fox in Chicago, as well as the accountancy firm of Laventhol & Horwath, all of which provided outside professional services to J. David & Co. They remain defendants in the suits.
J. David & Co. attracted about $200 million from 1,500 investors with promises of annual returns of up to 40%. The profits were non-existent, however, and Dominelli since has admitted that he operated a typical “Ponzi” scheme, in which money from new investors is needed to pay off existing clients.
About $82 million was lost by investors, according to federal prosecutors.
Dominelli was sentenced to 20 years in federal prison in June after he pleaded guilty to three counts of fraud and one count of income tax evasion.
A federal grand jury in San Diego is continuing to investigate the firm and several of its principals.
Among the potential targets of the grand jury, according to sources close to the case, are former J. David executives Nancy Hoover and Mark Yarry; former Rogers & Wells partner Norman Nouskajian, who was the firm’s main J. David lawyer; Rogers & Wells attorney Don Augustine, and attorney Michael Clark, formerly of Wiles, Circuit & Trembley.
As previously reported by The Times, confidential Rogers & Wells documents reveal that the law firm and several of its attorneys knew that Dominelli’s investment firm was selling unregistered securities--and therefore operating illegally--more than one year before the firm was forced into bankruptcy by a group of disgruntled investors.
In fact, in January, 1983, a Rogers & Wells partner in London urged the firm’s San Diego office to tell Dominelli to “cease trading” his foreign currency accounts.
That attorney, Joni Lynett Nelson, partner-in-charge of Rogers & Wells’ London office, suggested that Dominelli refund his clients’ money. Because of the securities violations, Nelson’s memo recommended that Rogers & Wells “cannot continue to represent” J. David.
Rogers & Wells’ San Diego office continued to represent the La Jolla firm, however.
Attorneys here did inform Dominelli, in a four-page memo dated Feb. 2, 1983, that his clients’ accounts should be registered as securities. But, the next day, Augustine, who had authored the four-page memo, met with the corporate counsel for the state Department of Corporations to discuss the state’s investigation of J. David & Co.
Augustine, according to confidential Rogers & Wells memos, argued that the J. David accounts were not securities and, therefore, were exempt from registration. State authorities relied on Augustine’s assurances when they dropped their investigation.
Most of the $200 million J. David & Co. attracted came in after the state called off its investigation. Former investors have alleged that the bulk of the J. David fraud might never have happened had the state known as much as Rogers & Wells did about J. David’s illegal activities.
Mitchell L. Lathrop, partner-in-charge of Rogers & Wells’ San Diego office, suspected that J. David & Co. was running a Ponzi scheme in early 1983 and ordered a secret, internal investigation of the La Jolla firm, according to internal Rogers & Wells documents. The investigation was intended to discover if Dominelli was telling his outside lawyers what he “believes we want to hear rather than what is actually the fact,” according to a memo written by Lathrop on Jan. 23, 1983.
