Suit Claims Bank Acted Improperly

First National Bank of San Diego and four of its current and former officials improperly transferred more than $20 million among various J. David & Co. bank accounts in 1982 and 1983, the J. David bankruptcy trustee claimed in civil lawsuits filed Thursday.

Most of those funds--at least $15 million--were transferred at the request of J. David (Jerry) Dominelli and at least one other person, even though they were not authorized to withdraw the money, according to the lawsuits filed on behalf of trustee Louis Metzger.

The lawsuits were filed both in federal and state court in San Diego by attorney Patrick A. McCormick Jr., who also represents dozens of former J. David investors who have sued other professional firms that once worked for the collapsed La Jolla investment firm.

Metzger is seeking $10 million in damages.

Named in the suit were First National Bank; First National Corp., the bank’s parent company; former executives Ed Cunningham and Ed Peterson (who left the bank last year), and current executives Tom LaHay and Donna Smith.

‘Should Have Known’

Had the bank officials exercised “reasonable care,” they “should have known” that the improper withdrawals and transfers between various J. David & Co. accounts would harm the company, its investors and, eventually, the bankruptcy estate, according to the suit.

Investors who had deposited funds in the J. David Banking Co. Ltd. account believed their funds would be used for investment purposes and not for Dominelli’s personal benefit, the suit claimed. But Dominelli and “other unauthorized persons” withdrew millions of dollars from that account and put some of those funds to personal use, according to the suit.

Previously, accountants for the trustee have said in court that investor funds were massively commingled and that money flowed in and out of various accounts at First National Bank.

First National officials announced in December that Metzger had threatened to sue the bank. The announcement--made, officials said, because of the bank’s public company status--followed weeks of unsuccessful, closed-door settlement negotiations between bank officials and attorneys for Metzger before U.S. Magistrate Harry R. McCue, according to sources close to the case.

Suit Termed Without Merit

First National President Robert D. Richley said Thursday that he hadn’t yet seen the lawsuit, but that bank officials “handled ourselves properly and we’ll respond accordingly.”

The suit, he said, “is without merit.”

First National’s insurance policies--valued at between $10 million and $17 million, according to sources familiar with the bank--would “cover this type of event,” said Richley.

The bank reported assets of $136.8 million and stockholders’ equity of nearly $16.6 million for the year ended Dec. 31.

Previously, bank officials maintained that the transfer of funds to the J. David Banking Co. Ltd. account “actually exceeded the amount of funds allegedly transferred without proper authority . . . by approximately $8.9 million.”

J. David & Co. attracted about 1,500 investors and $200 million with promises of annual returns of up to 40%. Actual investor losses totaled about $82 million.

Earlier this month, First National was added as a defendant in nine civil lawsuits by hundreds of former J. David investors seeking $247 million in damages.

1983 Bank Memo

Whether bank officials knew of J. David’s “Ponzi scheme” is at the heart of the trustee’s and the investors’ lawsuits. An internal bank memo dated Dec. 20, 1983, revealed that Dominelli told First National bankers that his cash-flow problems would soon be solved because he was going to use new investor money to cover withdrawal requests from existing clients--a typical Ponzi scheme.

The memo revealed that Dominelli was “unprepared” for the avalanche of fund withdrawal requests, which totaled about $4.5 million in December, 1983, alone. The firm was forced into bankruptcy in February, 1984.