Flanked by posters plotting bank account flow charts and evidence of massive commingling, attorneys for the bankruptcy trustee told a federal judge Thursday that J. David (Jerry) Dominelli was such a bad businessman that he "had no way of knowing" the collapse of his investment firm was imminent in February, 1984.
"Money came in and went out; there was no order to it," attorney Frederick R. Wirtz told U.S. District Judge J. Lawrence Irving during a hearing on the status of the J. David & Co. bankruptcy estate.
Earlier, bankruptcy trustee Louis Metzger estimated that $152.1 million had been received in nine primary J. David bank accounts between January, 1983, and February, 1984.
Metzger's figure is different from the $200 million calculated by federal prosecutors because it does not include any funds received before 1983 nor does it include funds deposited in the more than 90 other bank accounts used by J. David.
The bankruptcy hearing occurred Thursday morning, only hours before Dominelli pleaded guilty to four felony charges relating to the collapse of his investment firm. Dominelli faces up to 20 years in prison.
Rather than a financier who made millions of dollars in profits by trading in the highly speculative international foreign currency market, Dominelli was described as a man who "didn't even know how to balance his checking account."
Instead, Dominelli "had to call the bank everyday to determine his bank balance," said George Kilcrease, partner in the San Diego office of Touche Ross & Co., Metzger's accountancy firm.
"When you cut through everything," said Wirtz, "(J. David & Co.) basically was people writing a check to Jerry Dominelli and then him doing whatever the hell he wanted to do with the money."
It was the first time that trustee officials have publicly described J. David's business activities as fraudulent.
Dominelli, dressed in the same tan suit he was wearing when he was arrested by federal agents April 28 in Miami, was expressionless during the hearing. He sat at a table with two members of the J. David creditors' committee.
Irving on Thursday ruled that Dominelli's prison stint through Aug. 22, when he purged a civil contempt charge, would not count as time served when he is sentenced by U.S. District Judge William B. Enright.
The proceeding was highlighted by a complex presentation by Metzger and his colleagues that included three poster-sized flow charts which detailed how the commingled J. David investor funds flowed in and out of various checking accounts.
The money, said Kilcrease, "never left San Diego," but instead was "deposited directly" into San Diego area bank accounts.
Both Hoover and Dominelli withdrew money from some accounts they were not authorized to, it was revealed in court Thursday.
During his presentation, Metzger implied that he is exploring legal remedies for the unauthorized withdrawals. He did not specify whether the potential legal action would involve Hoover or First National Bank--J. David's primary bank--or both.
Determing exactly how much money is still owed J. David investors is a complicated process. Although $120 million was paid out, some of that represented "profits" that never existed. A total of $100 million in paper profits was reported to investors.
The trustee, according to sources close to the case, will maintain that investors' claims against the estate should be limited only to "hard money."
If an investor withdrew more than the amount originally deposited, then Metzger will attempt to retrieve the excess, the sources said.
Metzger on Thursday said that he had recovered nearly $16 million in J. David assets. After expenses and paying off mortgages tied to the assets, the estate has netted about $9 million.
The status of at least another $25 million in preference payments--funds paid out in the 90 days before the J. David bankruptcy--remains uncertain. Metzger is suing former investors for those funds.
In an related matter, Irving approved an interim fee request by Metzger's attorneys for $1.7 million through November and for $479,251 by the trustee's accountants for the same period. The firms receive only 80% of the billing, with the balance to be paid when the bankruptcy liquidation is completed. That process is expected to take at least another year.
Irving broke the air of complicated high finance with humor twice during the 3 1/2-hour proceeding.
After hearing attorneys describe Dominelli's sorry state of record keeping as "bad information in, bad information out," Irving quipped that while he had heard of the accounting terms LIFO and FIFO (last in/first out and first in/first out) this was the first time he had heard of "BIBO."
At another point, when Irving's stenographer stopped to reload her typing paper, Metzger, a retired Marine Corps lieutenant general, said he wanted to talk "off the record" and reiterated a point previously made. Offered Irving: "Only a lieutenant general in a federal court could tell a reporter something is off the record."
Coincidentally, Metzger's report occurred one year to the day after Irving had officially placed J. David's seven primary businesses into bankruptcy liquidation. (Disgruntled J. David investors forced the investment firm into involuntary bankruptcy on Feb. 13, 1984, by filing a petition. Irving's order one year ago approved that petition.)
Thursday also marked the one-year anniversary of Metzger's appointment as permanent J. David trustee.
On that same day in 1984, Dominelli told The Times that the trustee was having trouble retrieving investor money from foreign banks because of a sluggish transfer process.
Getting the money back, Dominelli said at the time, has "a lot to do with the correct way it's been requested, and because it will be going into a trustee's account, not our account. We've done our part . . . we've lost control of the situation."