J. David Aide’s Claims of Innocence Disputed

Mark Yarry says it took him four weeks to gather his courage before he charged into the boss’s office in the summer of 1983 and asked if the client funds invested in J. David & Co. were intact.

J. David (Jerry) Dominelli walked to a filing cabinet, Yarry recalled, and withdrew what he said were two financial statements from Swiss Bancorp, one of the banks supposedly doing business with the fraudulent La Jolla investment firm.

The statements purportedly showed balances totaling more than $170 million. Yarry said he had become concerned about the firm’s “excessive spending.”

Yarry recalled: “So, I said, ‘Jerry, I’m sorry I ever questioned you about it.’ I ate crow and I said, ‘I’ll never mistrust you again.’ ”

In March, 1984, after the company had folded, Dominelli sat in a Bob’s Big Boy restaurant in Poway with Yarry and admitted that the financial statements were bogus, Yarry recalled.

“He said they sent out mistaken statements. He said it was like a blessing from heaven.”

Dominelli, with only a few months of survival remaining for his scandalous firm, showed those statements to several suspicious employees and investors, according to Yarry.

At that same meal at Bob’s Big Boy, Yarry said, Dominelli confided that he was contemplating suicide. The J. David & Co. founder changed his mind, Yarry said, explaining that it would be “the cowardly thing to do.”

The disclosures, made in a series of intense interviews here late last month, provide for the first time Yarry’s version of the J. David saga, how it operated and how it managed to attract $200 million from 1,500 investors.

Hounded by angry investors and the curious news media, Yarry fled San Diego in April, 1984, less than two months after J. David was forced into bankruptcy by disgruntled clients unable to withdraw their funds.

While Yarry has been in self-imposed exile, his side of the J. David story has not been told, he said. As a result, he complained, he has been the “scapegoat” for J. David’s collapse.

“A lot of the problems and the responsibility have been laid on my doorstep because I’m not there to defend myself,” he said.

Yarry’s role was to sell J. David’s foreign currency trading accounts--the so-called Interbank accounts--to international clients and to keep track of funds from U.S. clients that were supposedly deposited in overseas banks. The money, it turned out, never left San Diego.

According to Yarry, he tried to bring a sense of organization to the company, and he wanted to establish an independent trust in Switzerland to watch over investors’ funds.

Many of Yarry’s assertions about what happened at J. David are unsubstantiated; some are contradicted outright by both federal prosecutors and sources close to J. David bankruptcy trustee Louis Metzger.

Neither government nor bankruptcy officials have ever seen the Swiss Bancorp statements showing $170 million in funds, for example. In fact, authorities have been able to pinpoint a maximum of only $6 million on deposit at Swiss Bancorp.

Less than one month after the meeting at Bob’s Big Boy, both Dominelli and Yarry would leave the country--Dominelli for the tiny Caribbean island of Montserrat in an ill-conceived attempt to evade jail for refusing to cooperate with the bankruptcy trustee, and Yarry to the south of France and later to England.

Yarry, who had sole signature power over J. David Banking Co. Ltd.’s account at First National Bank in San Diego, had both “direct and specific knowledge” about the handling of J. David funds and its bank accounts, according to attorney Michael Aguirre, who has sued Yarry on behalf of several J. David investors.

Former J. David executives describe Yarry as Dominelli’s right-hand man but, to hear Yarry tell it, he was just another high-ranking employee with access to the boss.

Yarry claims he attempted to “bring professional people” to J. David by hiring a chief financial officer and an office manager. His actions, he said, were an effort to counter what he called the “chaotic office” managed by Nancy Hoover, Dominelli’s companion and commander-in-chief of J. David’s office operations.

Hoover managed a loose and expensive shop, according to former employees. Children of Hoover’s friends were hired as well-paid J. David secretaries, and the office organization structure often changed daily.

Yarry said he and Nancy Hoover didn’t get along. Hoover, who had political and social connections allowing Dominelli to market his foreign currency operation to San Diego’s elite, was a “genteel lady who can’t say no,” Yarry recalled. “People would get raises out of the blue. We’d make a decision and the next day Nancy would completely change it.”

Despite its organizational chaos, J. David provided the restless Yarry with a sense of structure.

The firm “brought some order to my life,” he said. “I thought that this was my job for life; I enjoyed the corporate structure.”

Yarry’s dream job ended when J. David collapsed. Now he finds himself facing a federal grand jury probe for allegedly participating in the sale of unregistered securities and for income tax evasion.

He seems less concerned with his legal woes, however, than with trying to convince former colleagues and investors of his ignorance of J. David’s Ponzi scheme, in which new investors’ money is used to pay off existing clients.

“With the exception of a possible violation of securities laws, no one has yet come up with one piece of evidence to my knowledge that shows I was in any way an accomplice to Jerry Dominelli,” Yarry said. “And there’s evidence to the contrary.”

That evidence, according to Yarry, is a letter written by Dominelli in March, 1984, that purportedly states that Yarry was unaware of the Ponzi scheme.

Michael Pancer, Yarry’s attorney in San Diego, said the letter exists, but declined to disclose its exact contents.

Prosecutors are now attempting to discover how much Yarry actually knew about the company’s operations. Other targets of the investigation, according to sources close to the case, include Hoover, former Rogers & Wells attorney Norman Nouskajian, current Rogers & Wells lawyer Don Augustine and former Wiles, Circuit & Trembley attorney Michael Clark.

According to internal documents from J. David and from Rogers & Wells, the investment company’s law firm, Yarry appears to have at least known that J. David’s Interbank accounts were indeed securities and should have been registered with the government.

Hand-written notes taken during a Jan. 21, 1983, meeting of J. David officials and attorneys from Rogers & Wells, copies of which have been obtained by The Times, show that Yarry on at least two occasions referred to possible problems from selling the Interbank accounts.

The notes--which revealed that Rogers & Wells attorneys discussed ways to “contain” a state investigation into J. David’s sale of unregistered securities--show Yarry as saying: “What if we stop raising any new money, none, from Jan. 22, 1983. Still have problems!”

Government authorities as well as attorneys representing former J. David investors point to those notes as proof that Yarry knew that the firm was selling unregistered securities.

But Yarry insists that his statements in that meeting prove that he and others relied on advice from attorneys to resolve the securities issue.

Yarry may also face federal income tax problems, according to sources close to the J. David case.

Of keenest interest to authorities is a Swiss bank account belonging to Yarry that he called Sebastian, the name of his cat. The account was liquidated in mid-1984, after the collapse of J. David and after Yarry had left San Diego.

Included in the Sebastian account was about $300,000 in money from Yarry’s sale of stock in J. David Banking Co. Ltd.

Until his resignation in August, 1983, Yarry was managing director of J. David Banking. The firm is known as a “brass-plate bank” because its headquarters in Montserrat is evidenced only by a brass plate, engraved with the firm’s name, on the wall of an attorney’s office.

Yarry also left San Diego with about $230,000 from the sale of his two Rolls-Royces--a 1980 Silver Wraith and a 1982 Corniche--and from the sale of his four-acre estate in Poway.

Yarry refused to discuss the Sebastian account.

But sources close to the J. David case maintain that Yarry could owe more than $150,000 in back income taxes from that account and other transactions.

In mid-1984, Dominelli accused Yarry of stealing $350,000 in investors’ funds and depositing them in a personal account in a London branch of a Zurich bank. Yarry vehemently denied the allegation, and authorities have yet to discover any such bank account.

Yarry maintains that most of the money he had two years ago has been spent on living expenses--he started working only in January--and to pay debts connected with J. David.

He says he paid, for example, $100,000 in expenses to close down the Lugano, Switzerland, office of Threadneedle Trust Services after J. David’s demise. Sources familiar with the J. David case say, however, that neither the trustee nor federal prosecutors know about this $100,000 payment.

Threadneedle was supposed to be an independent trust that was to have handled all of J. David’s client funds. But, with Yarry as head of Threadneedle, many former investors were skeptical of its independence.

Yarry insisted, however, that Threadneedle would have been independent and said that he was preparing to order an independent audit of clients’ funds when J. David collapsed.

Threadneedle was established, Yarry said, to ease investors’ growing fears that all was not proper at J. David. Moreover, it was “the answer to the problem” of regulators’ concerns that the company’s trading activity should be registered as securities.

Threadneedle officials assured U.S. regulators that Interbank accounts were being sold only to foreigners. At the same time, they told British banking officials that Interbank accounts were only offered to U.S. citizens.

For Yarry, Threadneedle was “my chance to run my own show.” He saw an opportunity to make some money and to satisfy his “restless” desire to return to Europe.

Threadneedle, according to Yarry, was going to charge J. David $500 per year for each of its 1,500 clients. Annual revenues would total about $750,000, and overhead would have been only about $200,000, leaving Yarry with an annual income exceeding $500,000.

But the plan unraveled when Yarry convinced Dominelli to change J. David’s annual management fee from 20% of the supposed profits earned for investors to a flat 1% monthly fee for total funds under management.

The change was supposed to increase J. David’s fees. Instead, it increased the suspicions of already skeptical J. David investors.

A run on the bank by clients clamoring for their money ensued. Dominelli--without Yarry’s knowledge, according to Yarry--changed the fee arrangement back soon after.

But it was too late. The firm was forced into bankruptcy a few weeks later.

“I wanted the management fee changed so we had a predictable income . . . regardless of Jerry’s behavior in the marketplace,” Yarry said. “It was more important to have fewer clients and a predictable income.”

Moreover, Yarry said, he believed the fee-change letter might reveal whether Dominelli’s operations were indeed a Ponzi scheme.

Several sources familiar with the J. David case contend that company officials should have known that the letter would cause investors to panic.

Yarry countered that only if officials knew the company was a fraud would they be afraid of such a panic. He insisted that Dominelli was the only one who protested the fee change.

Threadneedle had just a handful of clients who had invested about $500,000, Yarry said. When J. David started to crumble in January, 1984, Dominelli, according to Yarry, wanted access to that money.

Yarry refused and, he said, ordered the funds returned to investors.

He also insisted that he ordered the Threadneedle staff to turn J. David records in Lugano over to Swiss prosecutors. U.S. authorities maintain, however, that Yarry wanted to destroy the records.

“If I’m a desperate guy at the end of a rip-off,” he asked, “am I going to let half a million dollars walk out of my hands?

“If I had the opportunity . . . to take all the documents out of J. David’s office, which is what I was asked to do, why did I tell (the staff) to turn them over to the public prosecutor? I could have . . . dumped them in the lake.”