Great frauds in history: Jerry Dominelli’s Ponzi scheme

J. David “Jerry” Dominelli's classic Ponzi fraud cheated investors out of $80m in the 1980s.

Jerry Dominelli © Jerry Rife/The San Diego Union.

J. David "Jerry" Dominelli was born in Chicago in 1941, graduated from the University of San Diego, and went on to became a stockbroker. In 1979 he set up J. David & Company, an investment company that claimed it could make returns of around 40%-50% a year on the interbank and foreign-currency markets. While many people were sceptical, its apparent initial success led to a flood of investors and Dominelli broadened the fund's activities into other ventures, such as real estate. By 1983 the fund had received more than $200m ($504m in today's money) from 1,500 investors.

What was the scam?

Despite the illusion of investment success, the returns were almost completely made up as J. David & Company engaged in only $11m ($27.7m) worth of trading. Instead, it operated as a classic Ponzi scheme, with the money from new investors going to pay returns to those who had previously bought into the scheme. Meanwhile, Dominelli would use the 20% of the fictitious returns that he charged as his fee, as well as large sums from the fund, to maintain a lavish lifestyle. He bought multiple homes, several private jets and spent millions of dollars on classic cars.

What happened next?

By December 1983 the scheme began to unravel as the company began to run short of money. When some investors tried to withdraw their money, they found that the cheques that they received bounced because of a lack of funds, leading to a massive panic as other investors tried to get their investments back. Despite attempts to reassure investors by falsely claiming that the company was solvent, J. David & Company was forced to declare bankruptcy, and Dominelli was arrested, eventually spending more than a decade in prison after confessing to defrauding investors.

Lessons for investors

Only $120m ($303m) out of the $200m invested was returned to investors, with the balance spent on expenses or blown by Dominelli and his partner. Many investors ended up losing even more because they borrowed money or made spending decisions based on the false account statements provided by Dominelli. Given that stocks can go down as well as up, and funds can lose money, it's never a good idea to get carried away by investment success that might only prove temporary.

Recommended

Cash rich and bored? Be careful what you do with your money
Investment strategy

Cash rich and bored? Be careful what you do with your money

As the pandemic has left many people with more time on their hands but little opportunity to spend, they have been speculating in the markets. But don…
19 Oct 2020
Jonathan Ruffer: tech stocks have become “long-duration assets”
Tech stocks

Jonathan Ruffer: tech stocks have become “long-duration assets”

As with bonds, tech stocks are now held not because of that they are, but because of what investors fear if they don't hold them, says Jonathan Ruffer…
16 Oct 2020
Investors should give European stockmarkets a second look
European stockmarkets

Investors should give European stockmarkets a second look

Investors tend to think that European stockmarkets are full of stale “old economy” firms while the US is full of fast-growing tech stocks. But Europea…
16 Oct 2020
Lessons for investors from Big Tech's previous golden era
Tech stocks

Lessons for investors from Big Tech's previous golden era

The forerunners of today's tech stock titans dominated the 1960s and 1970s. Former Xerox senior manager Dr Mike Tubbs was there and explains what inve…
16 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020