10-Year Prison Sentence for Nancy Hunter

Nancy Hoover Hunter, convicted of four counts of tax evasion connected to the J. David & Co. fraud, was sentenced Tuesday to 10 years in federal prison.

Just before the sentence was announced, Hunter, 51, a top executive with the failed La Jolla investment firm, begged U. S. District Judge Earl B. Gilliam for mercy, crying and holding on to a lectern for support as she said she was “terribly sorry for all the pain and suffering I’ve caused.”

Although Hunter’s attorneys conceded that the tax-evasion charges were based on misused investors’ funds, they had pleaded with Gilliam to view her conviction apart from the complicated J. David fraud, a scheme that bilked about 1,500 investors of some $80 million from 1979 to 1984.

But in announcing the 10-year sentence, Gilliam said the case was “a little more than an income tax violation case.” The judge added, “We have in this case the motive, the extravagance and, uppermost, the people who were hurt.”

Gilliam, who could have sentenced Hunter to 20 years in prison, added a five-year probation term after the 10-year prison sentence concludes, but did not impose a fine. The judge said he was not ready to consider a parole date.

Hunter, who was convicted six years after the J. David empire collapsed, drew more than twice as harsh a sentence as New York “hotel queen” Leona Helmsley, also convicted on tax evasion charges.

The giant J. David & Co. fraud involved a Ponzi scheme, in which money from new investors was used to pay off old investors and little actual trading of stocks or money market funds was done. Prosecutors allege that Hunter played a key role in the scheme, creating false documents to lure investors to J. David and then to lull them into staying put while the firm slid toward the bankruptcy that was declared in February, 1984.

Hunter’s ex-lover, firm founder J. David (Jerry) Dominelli, pleaded guilty in 1985 to fraud and tax evasion in connection with the Ponzi scheme and is serving a 20-year sentence in federal prison in Pleasanton, Calif.

After an eight-month trial, a jury convicted Hunter on Dec. 11 of only the four tax counts--out of 197 total charges. It acquitted her of one other tax charge but deadlocked on 192 other counts, primarily fraud and conspiracy stemming from her role at J. David.

Prosecutors have said they intend to go to trial again on the 192 counts, and a trial has been tentatively set for May 1. Gilliam has set a March 20 hearing to decide whether there has been so much publicity about Hunter’s case that her second trial should be moved to San Francisco.

Hunter, a former Del Mar mayor, had been awaiting sentencing since Dec. 11 at the federal Metropolitan Correctional Center in downtown San Diego. She was returned there Tuesday to begin serving her sentence.

Hunter appeared in court dressed in a khaki jail jumpsuit and blue sneakers, with her blond hair pulled back in a lavender ponytail holder. The jumpsuit hung on her frame and it was obvious she had lost weight during the past three months. She showed no emotion as the sentence was announced.

Because the second trial is coming up, Gilliam said Tuesday that he would keep in force a gag order that bars the lawyers or anyone connected to the case from discussing it with reporters.

Charles A. Bird, a San Diego lawyer who filed the first suit in 1984 against Dominelli and Hunter but who no longer is involved in any lawsuit related to J. David, said the 10-year sentence left him still seeking a sense of finality to the affair.

“I don’t have that ‘Well, she finally got what’s coming to her’ feeling, because there still is no real closure to the matter,” Bird said.

“First, she was convicted of a tax crime and the taxpayers are the victims,” Bird said. “That doesn’t establish anything psychologically satisfying to individuals who lost money in that Ponzi scheme.

“Second, the very fact that so many of the substantive criminal charges are still pending--it just doesn’t feel over. I’m sure it doesn’t feel over to her any more than it does to anyone else who’s involved in it.”

Once Hunter’s second trial ends, she faces yet another trial on securities violations connected to the J. David affair.

In preliminary matters at Tuesday’s hearing, Gilliam, rejecting two defense claims, ruled that Hunter is not entitled to a new trial on the four tax counts.

The judge admitted that he did tell jurors after six days of deliberations that they should have reached a verdict. That was a mistake, he said, but it was not a critical one requiring a new trial, because he corrected himself the next day and told jurors to take their time. The panel eventually deliberated 15 days.

Gilliam also rejected the notion that jurors convicted Hunter of a phantom tax law, a claim defense lawyers made after saying juror John Posey, 44, of National City had told them the panel decided the four tax charges under a law that doesn’t exist. Gilliam said he agreed with prosecutors that the jury based its verdict on what it heard at the trial.

The tax charges involved nearly $2 million Hunter failed to report on her personal income taxes for the years 1980 through 1983, evading nearly $1 million in taxes.

At the trial, Hunter said Dominelli told her she should not consider the money income and assured her that he would take care of any tax on it.

In the sentencing phase of Tuesday’s hearing, defense lawyer Richard Marmaro urged Gilliam to keep in mind that this was “a tax case and nothing more,” since the jury hung on the 192 counts that were at the heart of the case. Marmaro did not mention that the jury deadlocked 11 to 1 for conviction on those counts.

Marmaro urged Gilliam to consider other tax cases in sentencing Hunter. Generally, first-time tax offenders receive a moderate sentence, he said, ranging from probation to a couple of years in prison, Marmaro said.

For instance, Leona Helmsley, the high-profile “hotel queen,” was sentenced in December to four years in prison for evading taxes, Marmaro said. Helmsley was convicted of fraudulently billing $3.1 million in expenses to her hotel and real estate empire, far more money than was at issue in Hunter’s case, Marmaro said.

In urging compassion, Marmaro also disclosed that Hunter had been repeatedly molested by her father as a teen-ager and said that had made her unduly rely as an adult on “male authority figures” such as Dominelli.

Marmaro said Hunter did not want to bring up the molestation at the trial because she feared it would harm other family members. Marmaro said he insisted on making the molestation public at the sentencing hearing because it helped explain Hunter’s attachment to Dominelli.

Hunter’s sister Carol Fletcher cried Tuesday as Marmaro said Hunter was sexually abused, “repeatedly and regularly,” from age 10 to 20.

A pre-sentence report put together by federal probation officials had recommended a 7 1/2-year term. But Assistant U.S. Atty. S. Gay Hugo said that was not long enough to punish Hunter, who she said had been driven by greed and had never admitted that she committed a crime. Hugo recommended the maximum 20-year sentence.

Immediately before Gilliam announced the 10-year term, Hunter took her turn at the lectern.

“I’m terribly sorry for all the pain and suffering I’ve caused,” she said. “I feel terribly stupid. I feel like my whole life has been a failure. I feel like everything I’ve done has been wiped out.

“I’ve tried to find the words for the incredible shame I feel. I’m truly sorry, Your Honor, and I ask for your mercy.”

Hunter has 10 days to file papers for an appeal of the term.