Judge OKs $40-Million Payback in J. David Suit

SAN DIEGO — Rogers & Wells, the high-powered New York law firm that lent its prestige to J. David & Co.’s bogus investments, received court approval Friday to pay up to $40 million to more than 300 J. David investors--the largest settlement ever entered into by an American law firm.

Under terms of the agreement, investors would receive roughly 45 cents for each dollar they deposited with J. David, with no consideration for earnings posted while the defunct La Jolla firm held their money or for profits they might have earned had they invested elsewhere.

Rogers & Wells “purchased its peace,” said Dennis Kinnaird, attorney for the firm, which is headed by former U.S. Secretary of State William P. Rogers.

The firm’s insurers already have deposited $40 million in a bank outside San Diego, according to lawyers involved in the case. But while the settlement envisions payments being issued to the defrauded investors within two months, appeals are expected to delay that timetable, at least briefly.

Co-Defendants Object

Presiding Judge Donald W. Smith of the San Diego County Superior Court approved the agreement over the objections of several of Rogers & Wells’ co-defendants, mainly law and accounting firms that also provided professional services to J. David but did not participate in the settlement.

The firms--including the national accounting firm of Laventhol & Horwath--argued that Rogers & Wells should bear more than 45% of the burden of paying investors’ damages. They also objected to provisions of the settlement that barred them from pursuing their own claims against Rogers & Wells.

Nonetheless, Smith found that the settlement had been reached “in good faith,” as required by law. “Forty million dollars sounds like a lot of good faith,” he quipped, provoking a laugh from the more than 30 attorneys who participated in an hourlong hearing Friday.

‘Meets Standards of Law’

“Certainly that 45% figure is not oppressive, and it certainly meets the standard of the law,” Smith ruled.

Rogers & Wells advised J. David on securities matters, continuing to represent the firm through its San Diego office even after its London office concluded that J. David was trading in illegal, unregistered securities.

Before the investment firm was forced into bankruptcy in February, 1984, about 1,500 investors sank about $200 million into J. David, which promised annual returns as high as 40%. But the profits were non-existent, and the firm’s founder, J. David (Jerry) Dominelli, has since admitted that he was operating a “Ponzi” scheme, in which new investors’ deposits were used to pay earnings to earlier investors.

Dominelli, who has suffered a series of debilitating strokes since the firm’s collapse, is serving a 20-year prison term, after his guilty plea in June to charges of fraud and income tax evasion.