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Accountants to Settle J. David Suits for $6.5 Million

August 12, 1986|BILL RITTER | San Diego County Business Editor

EL CAJON — Laventhol & Horwath, the prominent national accounting firm, has agreed to pay $6.5 million to settle lawsuits brought by former investors in the fraudulent J. David & Co. investment firm, it was disclosed in court Monday.

Attorneys representing more than 350 former J. David investors and the defendants--the accounting firm; Jerry Morrison, its managing partner in San Diego, and Eric Johnson, a former Laventhol employee who later worked for J. David--disclosed in court that they had reached a tentative settlement Friday.

Terms of the agreement were sealed until Monday afternoon.

The Philadelphia-based accounting firm, six weeks into a trial in San Diego County Superior Court here, was accused of aiding and abetting J. David (Jerry) Dominelli in his scheme to swindle about 1,500 clients who invested about $200 million between 1981 and 1984. Actual losses reached $82 million.

The agreement, which still requires court approval, is the third out-of-court settlement involving various professional firms that once represented J. David companies. Earlier this year, the Rogers & Wells law firm agreed to pay investors $40 million--the largest settlement ever made by a U.S. law firm. And, last month, Abramson & Fox, a prominent Chicago law firm, agreed to settle its lawsuits by paying investors $7 million.

Laventhol & Horwath's trial has progressed slowly. Only four witnesses have testified, and Superior Court Judge James A. Malkus said Monday that he had cleared his court calendar through next March to accommodate the proceeding.

The settlement does not include Laventhol's co-defendants--the San Diego law firm of Wiles, Circuit & Tremblay or Michael Clark, a former partner in the firm, nor does it include First National Bank of San Diego, which has also been sued by former J. David investors. The bank, which served as J. David's lead financial institution in San Diego, is scheduled to begin trial early next year.

Attorney Patrick McCormick, representing some former J. David investors, said he sees no obstacles to securing court approval for the agreement.

Nonetheless, Richard R. Mainland, the attorney for Morrison and Laventhol & Horwath, said that either he or Mike Dukor, the attorney for Johnson, would continue to monitor the trial until a final agreement is approved. Then, if the agreement is not consummated, Laventhol & Horwath would be able to resume the trial without having "to go back to square one," he told the court.

If the agreement is approved, Mainland said, Laventhol & Horwath would later be severed from the trial.

However, Jack Samet, the attorney for Clark and for Wiles, Circuit & Tremblay, objected to dismissing the accounting firm from the trial until a "good faith" hearing is held, a process that could take weeks.

Samet said severing Laventhol & Horwath would "prejudice" his case. He charged that the evidence presented so far in the case shows that if wrongdoing at J. David is "anybody's fault, it's Laventhol's. If it was any type of fraud, it was a financial fiasco, not a legal one."

Laventhol & Horwath officials said Monday that the trial may have cost the firm as much as $3 million in legal fees. "No matter how strongly we feel about our complete innocence of any wrongdoing, we had to be realistic," said Barry Augenbraun, the firm's general counsel.

"We are still satisfied that no evidence has come forward to refute the fact that the services we performed for the legitimate Dominelli companies had nothing to do with investors losing money in J. David Banking." Augenbraun said the $6.5-million settlement will be paid for by the firm's insurance coverage.

Dominelli is now serving a 20-year prison sentence after pleading guilty last year to three counts of fraud and one count of income tax evasion.

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