Tuesday, Oct. 13, 2009 | Once they believed.
Their relatives, friends and business acquaintances told them it was a can’t-miss deal: Invest with J. David Dominelli and they’d make fantastic profits.
Dominelli’s foreign-currency scheme sounded perfectly plausible, and just about everybody who seemed to be anybody in early 1980s San Diego society was on board.
But by 1984 it was clear that Dominelli’s operation was a scam. Investors lost millions. They included local celebrities, socialites and people of more modest means.
Now, the belated news of Dominelli’s death last summer is opening old wounds and reminding surviving victims of hard lessons learned.
“It’s one of those things that makes you feel a distrust. It breeds a bad feeling,” said Carlsbad artist Jackie Zucker, who lost $50,000 as she was starting a business and preparing to send three daughters to college. “It affected us pretty profoundly, but we had to go on.”
An August obituary in the Chicago Tribune stated that Dominelli died in Chicago at the age of 68. But San Diego news outlets didn’t report on his death, which was apparently of natural causes, until Monday.
About 1,500 people and organizations fell victim to Dominelli’s investment scheme from 1979-1984; they lost an estimated $80 million. Dominelli spent about 10 years in prison before being released in 1996.
Dominelli admitted in court that he stole investment funds, fabricated financial statements and, in a classic style of a pyramid scheme, took money from new investors to pay off old ones.
Nancy Hoover, Dominelli’s glamorous girlfriend and a former Del Mar mayor, was accused of being a partner in the scheme. She served 30 months in prison.
Dominelli outlived many of his victims, including Zucker’s late mother-in-law. For her, the loss of savings led not to destitution but to dependence. She was forced to rely on her family for assistance, Zucker said.
“She’d had a very good life, and then everything crashed and there was a hard life. Then they built it up to a certain point, only to see it disappear,” thanks to Dominelli, Zucker recalled.
After the scandal, Zucker’s normally vivacious and optimistic mother-in-law would simply stop talking whenever the topic of Dominelli came up. “To see her really become very silent was sad,” Zucker said.
Other victims included an older couple who visited Dominelli’s office to make an investment with the wife’s inheritance from her mother, Zucker said. The husband was disabled, and “they came in with a wheelchair,” she recalled. “She was barely able to push him. They put the money on the table.” Two days later the scam was shut down, she said.
Many of Dominelli’s victims were much more high profile. They were said to include well-known jingle writer Thomas DiNoto, opera singer Enzo Stuarti, and comedian Joey Bishop, a member of Frank Sinatra’s Rat Pack.
Ex-Marines, doctors and even judges invested too, said former federal prosecutor Robert Rose.
Essentially, said former San Diego City Attorney Michael Aguirre, “this was really a Ponzi scheme for the rich and famous.” Aguirre, who filed a lawsuit related to the scam while working as a private attorney, was one of many high-profile modern-day San Diegans — including political consultants and then-Mayor Roger Hedgecock — who played parts in the Dominelli drama.
Frank Shorter, an Olympic gold-medal-winning marathon runner, was one of several athletes who invested in the scheme. He took part in a lawsuit against a firm that was doing work for Dominelli and managed to get his investment returned.
“I was one of the few fortunate people ever to get involved in a Ponzi scheme and actually be made whole,” said the 61-year-old Shorter, who now lives in Boulder, Colorado.
The whole experience “certainly made me much more prudent and cautious,” said Shorter, who reportedly invested $163,000. “Anytime anybody offers more than five-percent return on my money, I turn around and run the other way.”
Mitchell Zuckoff, a Boston University journalism professor and author of a book about the con man whose last name gave birth to the term “Ponzi scheme,” said many victims of pyramid schemes fail to fully engage that kind of skepticism, even though they usually sense that something might be wrong.
“I’ve come across very few Ponzi schemes where people didn’t know on some level that this was too good to be true,” he said. “They wanted to believe that their ship was coming in, that this was their lottery ticket. They’re going with the side of their brain that’s saying, ‘This is too good to miss.’ ‘Too good to miss’ will trump ‘too good to be true.’”
But in some cases, he said, Ponzi schemes appear to stand up under scrutiny. Zucker, the Carlsbad artist, said her then-husband carefully analyzed the Dominelli investment plan and thought it was on firm ground.
The scheme was “portrayed as not anything that would hurt anyone, it was simply an exchange of currencies,” she said. “If you’re selling yen and buying francs, how could that possibly hurt anyone?”
Zucker still feels stung by the words of those unsympathetic to her plight. “One of the things that I heard people say is, ‘You were greedy. You thought you’d get all this money and you were greedy,’” she said. “It’s not really fair. Sure, you expected a good return. But you saw results that would lead you to believe it was true.”
Zuchoff, the professor, said it’s not uncommon for Ponzi scheme victims to attract criticism, with some critics claiming, “Come on, you should have known better.”
Some investors, particularly the rich who invested early, did get a whiff of disaster near the end and abandoned the scheme, Aguirre said. Some of the less wealthy, however, had invested later.
“Think of it as a passenger liner,” he said. “The people who were in steerage got the word late.”
And many of them went down with the ship.
Randy Dotinga is a San Diego-based freelance writer. Contact him directly at email@example.com and follow him on Twitter: twitter.com/rdotinga. And set the tone of the debate with a letter to the editor.