Hedgecock to Testify in Hunter Trial

Former Mayor Roger Hedgecock will be granted immunity from prosecution to testify against Nancy Hoover Hunter, once one of his strongest political allies, at her trial stemming from her involvement in the fraud-ridden J. David & Co. investment firm, according to a brief filed in federal court Wednesday.

The brief, prepared by Assistant. U.S. Atty. S. Gay Hugo, alleges that Hunter was intimately involved with virtually every aspect of J. David’s business and personally opened all the firm’s mail. While working as a broker for another firm, Bache, Halsey, Stuart, Shields, Hunter provided J. David (Jerry) Dominelli with “false and misleading” documents he used lure investors and get his new company off the ground, the brief says.

Hunter’s lawyers have said they hope to persuade the jury that she and the investors were victims of Dominelli and that she was not nearly as involved in the firm’s business as the government claims.

Jury selection in the case continues today. Hunter is charged with 234 counts of fraud, conspiracy and income-tax evasion.

Hunter left Bache in April, 1981, and joined Dominelli’s business as president of J. David Trading Co. Later, she became president of J. David Securities. She and Dominelli, who had met several years earlier while both handled small accounts at Bache, began living together, spending money freely and socializing with some of the wealthiest and most prominent people in La Jolla and Southern California.

Forged Personal Friendship

Among them was Hedgecock, with whom Hoover forged a personal friendship and political alliance that began when both began public careers in Del Mar in the 1970s. Although their relationship was strained by Hedgecock’s disapproval of Hoover’s divorce after she met Dominelli, the two eventually reconciled, and she became one of Hedgecock’s most ardent backers in his successful 1983 San Diego mayoral campaign. Using J. David money, she was one of his chief financial backers.

The spending spree of Dominelli and Hunter lasted until 1984, when nervous J. David investors forced the firm into bankruptcy court after its checks began to bounce. Criminal indictments followed.

In all, investors lost about $80 million in the J. David affair, which has been described as a huge Ponzi scheme in which money from new clients was used to pay off old clients and little or no actual trading was done.

Dominelli pleaded guilty in 1985 to four counts of fraud and income-tax evasion and is serving a 20-year sentence in a federal prison. In 1986, Hoover pleaded guilty to state charges of conspiracy to funnel thousands of dollars into Hedgecock’s 1983 campaign. She was sentenced to three years’ probation, fined $10,000 and ordered to perform 350 hours of public service, which she did at the Santa Barbara Public Library. In addition to the case now on trial, Hunter faces a second set of federal indictments charging her with conspiracy and using the mails to sell unregistered securities.

Removed From Office

Hedgecock was convicted after a trial for campaign-law violations related to his use of J. David money and was removed from office. Hedgecock, who maintains that he is innocent, is appealing the conviction and has said that he lost respect for Hunter after she pleaded guilty to the charges rather than fight them at trial.

Hedgecock said Wednesday that he has not been told what prosecutors want to question him about and referred calls to his lawyer, Charles Sevilla.

“Since they’ve not indicated to us what they want him to testify about, it’s all speculation,” Sevilla said.

Richard Marmaro, one of Hunter’s lawyers, said Wednesday that Hedgecock’s testimony is irrelevant to the case and that the government is “grandstanding” by granting him immunity and calling him as a witness. “He’s not mentioned in any of the 234 counts,” Marmaro said.

Key to Investments

Keeping J. David’s dismal investment track record from public scrutiny was a key to the firm’s continued ability to lure new investors.

A key piece of evidence expected at the trial is a note, handwritten by Hunter, that says: “I’m not eager for J.D. Securities to clear your Interbank trades--they will then be able to construct their own version of your track record. It could be bad.” Prosecutors allege Hunter wrote the note to Dominelli.

Marmaro said Wednesday that prosecutors have “totally misconstrued” the meaning of that note. When the trial gets under way, the evidence and testimony will provide the first detailed public account of the inner workings of J. David.

According to the trial brief, Hunter told Internal Revenue Service agents that Dominelli’s personal bank account was held in the name of J. David & Co. and that Dominelli never reconciled or balanced the account. Hunter knew that practically all of the J. David entities lost money every month because she received monthly expense statements showing operating losses, the brief says.

‘Magic Checkbook’

Dominelli took money from customer accounts known around the office as “magic checkbook” accounts and deposited the funds in his personal account, according to the brief.

When an accountant discovered the improper comingling of funds and confronted Hunter and Dominelli, Hunter replied, “We’re here to have fun. Don’t be so serious,” the brief says.

When the firm was at its prime, Hunter and Dominelli “continued to gain social prominence by contributing J. David investor money to numerous charitable organizations and events,” the brief says.

“They bought tables for the Jewel Ball and Night in Monte Carlo, block tickets for the symphony and contributed to the landscaping of Mandell Weiss Center for the Performing Arts at UCSD.”

Named to Boards

In 1982, Hunter was appointed to the boards of the San Diego Symphony and the La Jolla Museum of Contemporary Art.

Dominelli and Hunter spent “huge sums of money” remodeling and refurbishing their office space in La Jolla, which the employees called the “Mahogany Palace,” the brief says. “Among its lavish appointments were mahogany paneling throughout, parquet floors, coffered ceilings, built-in Victorian-era bookcases and leather chairs.” They paid membership fees for 50 employees to use the La Jolla Athletic Club, gave them cars, and sent them on weekend trips to Las Vegas.

Prosecutors plan to call about 70 witnesses at the trial, which may last two months or longer. Whether Dominelli, who has suffered a stroke since the collapse of the firm, will be among them remains a mystery. His name is missing from a list of prosecution witnesses.

Hunter has remarried since her breakup with Dominelli after the firm’s collapse. She now lives with her husband, Kenneth Hunter, a wealthy businessman, in an exclusive coastal community near Santa Barbara.