J. David “Jerry” Dominelli is famed in San Diego lore for one thing: his 1980s Ponzi scheme that bilked Southern Californians of $80 million. A full 24 years after Dominelli was sentenced to prison, and more than three months after he died at age 68, new information has suddenly surfaced: Dominelli heard about Charles Ponzi, the Boston swindler whose name adorns the scam, in a political science class in the late 1960s at what is now the coeducational University of San Diego.
Steven E. Schanes (pronounced Shay-ness), 85, taught political science and was the academic dean at the men’s college between 1966 and 1969. It was merged with the women’s college in 1972 to form the university. Schanes, who received a Ph.D. in constitutional and international law from Cornell, was teaching a basic poly sci class of about 15 students. One was Jerry Dominelli. “He was very withdrawn, very quiet. He did not take part in class,” recalls Schanes, who is retired in San Diego. Dominelli graduated in 1969 with a C-plus average and a major in poly sci.
Schanes was discussing how, in order to “get at criminal activity,” the federal government creatively uses its powers, such as the interstate commerce clause of the Constitution and the power of the post office. Students really perked up, says Schanes, when he used the example of Chicago hoodlum Al Capone (finally nabbed on violation of Internal Revenue Service laws) and Ponzi, who caused a sensation in the early 1900s promising investors a 50 percent return in only 45 days.
Ponzi had convinced investors that he could make a 400 percent profit by buying postal international reply coupons in a country whose currency had collapsed and redeeming them in a strong-currency country. In actuality, he was not buying the coupons, but ignorant Bostonians bought into the tale and showered money on the cocky Italian immigrant. The U.S. Post Office quickly pointed out that these coupons were not being bought in quantity — domestically or internationally. The Massachusetts U.S. attorney tried to audit Ponzi’s nearly nonexistent records. Finally, the federal government charged Ponzi with 86 counts of mail fraud, and he pleaded guilty in 1920.
Ponzi went to prison, then went to Florida, where he sold people land that was underwater and promised investors 200 percent returns in two months. He went to prison again, then got into more trouble and returned to Italy, where he worked for Benito Mussolini. But after he pilfered some loot from the Italian treasury, he fled to Brazil. All this time, he maintained he was innocent, but on his deathbed he admitted to knowingly pulling the swindle, boasting, “It was easily worth fifteen million bucks to watch me put the thing over.”
After 1969, Schanes went to Washington, D.C., where he held distinguished posts. He was an assistant to the secretary of the Commerce Department, involved in the enactment of the Employee Retirement Income Security Act of 1974 (ERISA). He became the first executive director of the U.S. Pension Benefit Guaranty Corporation from 1974 to 1976.
Then he returned to San Diego, where he handled a number of matters for the Commerce Department, including the highly publicized tuna/porpoise controversy. He was also a pension consultant and head of several national pension-related organizations.
Upon his return, he noticed that “the J. David logo was everywhere in San Diego. Among other things, J. David was a major sponsor of the San Diego Symphony as well as other cultural and educational organizations.” When someone told him that J. David was an investment company headed by Jerry Dominelli, Schanes was incredulous: “You mean little Jerry Dominelli…the stooped-over, thin boy wearing eyeglasses?” Schanes was astounded when he learned that Dominelli represented himself as a genius in trading foreign currencies who could earn investors 40 to 50 percent a year.
Schanes remembers that Dominelli had worn Marine fatigues to class. True. He had been in the Marines. Later, Dominelli regularly bragged about his military heroics, but there had been none. He also boasted of Chicago mob connections; the mention of Capone may have interested him too.
As Schanes points out, Charles Ponzi had charisma. Dominelli did not, but he had Nancy Hoover, his lover and the company’s second-in-command. Hoover was tanned, fit, and hyper-ebullient. With the help of George Mitrovich, J. David money was spread around the community (such as to the symphony), as Dominelli and Hoover went on a spending spree with investor funds. “The two of them were in la-la land,” says Gay Hugo-Martinez, who prosecuted Hoover.
Along with several other people who studied the J. David scam, Hugo-Martinez doesn’t think Dominelli launched his company with Ponzi’s paradigm in mind. She says he had made several good trades while working at one brokerage house. While there, he showered Hoover with gifts; she divorced her tightfisted husband and joined Dominelli in his new firm. (Early on, however, investment companies with which J. David was doing business questioned the investment track record that Dominelli boasted of.)
“He wasn’t a dumb cluck,” says Hugo-Martinez. However, trading currencies is a highly complex and volatile business. Ph.D.s with banks of computers still don’t know why currencies move the way they do. “He realized it was way beyond him. He started to lose money.” But Dominelli was totally captivated by Hoover. She was luxuriating in the money he lavished on her. There was only one way he could keep it coming in. Hugo-Martinez believes that if Hoover had not been in the picture, the Ponzi scheme would not have taken place. Others question that: after all, Dominelli, like Ponzi, was a notorious liar.
Michael Aguirre, who filed lawsuits against firms and individuals that had helped Dominelli pull off the scam, says, “I don’t think he started off with the idea of doing a Ponzi. He was mesmerized by Hoover.” However, Aguirre thinks it is possible that once Dominelli knew he was in over his head and couldn’t bear to cut off the money flow to Hoover, he may have recalled that poly sci class and studied Ponzi further. After all, he copied Ponzi’s techniques: spending money conspicuously, employing money finders who would get fat commissions for recruiting investors, and hiring a public/community relations director to lend the firm respectability (Mitrovich). But just as Ponzi was not actually dealing in postal coupons, Dominelli was not trading currencies. Early investors were being paid with money from later investors; as soon as the money stopped coming in, the game was over. That’s a Ponzi.