The deal seemed too good to be true. As it turned out, it was.

J. David Dominelli promised investors a 40 percent return on the money they gave his J. David & Co. brokerage firm to invest in foreign currencies and other instruments. Over five years, Dominelli, 43, took in millions of dollars, lived high on the hog, traveled the world in a $4.5 million executive jet, sponsored an international auto-racing team, bought racehorses, and gave generously to San Diego charities.

But late last year it all came tumbling down. The company's checks began to bounce, and rumors flew that the J. David empire was not all that it seemed. Early this year, the company was forced into bankruptcy -- leaving more than 1,000 high-rolling investors out a total of anywhere from $60 million to $150 million, depending on whose estimate you believe.

At first, Dominelli insisted that nothing was wrong, even after the bankruptcy. He said that the money was tied up in Swiss and other foreign banks. Violating a court order, Dominelli fled to Montserrat in April in what he claimed was an effort to locate the missing funds.

But he soon was hauled back into the United States empty-handed and was arrested. A court-appointed trustee for the bankrupt company said that a search of J. David's overseas bank accounts turned up "not one penny" of the missing money.

Dominelli is now being held on $5 million bail. The trustee is putting up for auction Dominelli's remaining assets and trying to recover about $25 million from investors who got their money out in the weeks before the company failed, so that the funds can be distributed to those who held on to the bitter end -- and lost everything. It appears that, if anything, most investors will get just a few cents on the dollar on their claims.

Dominelli, who has declared his innocence while admitting that there was no money left, now says virtually nothing -- a stroke a month ago left his speech garbled, although he still can walk, shake hands and write notes. Some observers of the case wonder if Dominelli will ever be physically able to stand trial on the dozens of counts of fraud, perjury and conspiracy with which he is charged.

The scandal has pulled San Diego's popular young mayor, Roger Hedgecock, into its vortex -- Hedgecock has been indicted by a San Diego County grand jury for allegedly receiving illegal campaign contributions from Dominelli and Dominelli's business partner-girlfriend, Nancy Hoover. Hedgecock also faces a $1.2 million civil suit from the California Fair Political Practices Commission, a watchdog agency, on related charges.

The J. David affair has dominated San Diego's front pages and newscasts, a long-running soap opera involving in one way or another many of the city's most prominent residents. "It's had everything -- mystery, intrigue . . . whatever you can name, we've had it," said Louis Metzger, the former Marine Corps general who is the court-appointed trustee in the bankruptcy case. Metzger said it will likely be several years before all the claims arising out of the J. David collapse will be settled; the reverberations may go on even longer.

The biggest question is how so many presumably sophisticated investors bit on J. David's gaudy promise of 40 percent returns. Although Dominelli could show new investors that he was indeed making that kind of payoff, the fraud case accuses Dominelli of paying off old investors with the money from new investors, and spending whatever was left over -- a classic "Ponzi" scheme.

In fact, it appears that when J. David & Co. did, as advertised, put the money into the foreign currency investments, the returns were nothing like what Dominelli was claiming -- or paying. So long as the company could keep finding new investors with fresh money, that didn't matter. But once the pool of new investors began to dry up, the J. David bubble burst.

When he founded J. David in 1979, Dominelli was a journeyman stockbroker who had worked for five firms in seven years. Setting up shop in the toney suburb of La Jolla, he seemed to have hit the jackpot with his new venture.

Spending much of his time bent over computer screens tracking world currency fluctuations and issuing frantic buy and sell orders, the glamorous Hoover usually by his side, Dominelli built a thriving investment business. He hired the best brokers from other brokerages for eye-popping salaries; at its height, the firm had more than 250 employes and offices in places as farflung as New York, London and Hong Kong. By one estimate, the company was trading $200 million worth of foreign currencies daily. Jerry Dominelli was known around San Diego as "The Genius."

"It just seemed to be one success after another," said a former J. David employe. "While I'm sure there were detractors here and there, they were generally written off as being envious."

The firm's clientele included doctors, lawyers, bankers, judges and many other of San Diego's most prominent citizens, a category Dominelli and Hoover soon seemed to fall into with their huge donations to San Diego charities: $100,000 to the San Diego Symphony, $40,000 for a Jewish community center, $250,000 to build a theater at the University of California at San Diego. "This is a town where, when it comes to charitable causes, it's a nickel-and-dime thing," said one prominent San Diegan. "And he wasn't giving nickels and dimes."

Dominelli invested in car dealerships and oil wells and gold mines, bought a string of houses for himself and Hoover -- one of which they soon decided they didn't like because the bedrooms were too small -- and kept stables of racehorses, airplanes and expensive cars. In addition to their charity work, Dominelli and Hoover invested $357,150 in a political consulting firm run by a friend of Hedgecock. Hoover even loaned $80,000 to the mayor to remodel his home.

Last winter, however, questions began to arise about the J. David empire. Sure, investors had been getting 40 percent returns on their money. But there were indications that the size of the paybacks was beginning to shrink. And Christmas week, 30 checks written to investors against a J. David account at a Swiss bank bounced.

The firm blamed a clerical error. But through the first weeks of the new year, more cracks appeared. Clients found increasing delays in getting their money out of the firm. And more and more clients wanted out -- Metzger says that about 350 J. David clients pulled a total of $20 million to $25 million out of the firm in its last 90 days of existence.

Dominelli, saying that he was victimized by "a run on the bank," continued to assure clients that their money was safe. But he was apparently so desperate for funds to keep the faltering business alive that he even approached two reputed organized crime figures for a $125 million loan, according to court records. He didn't get it.

"When the checks began to bounce and the first news stories came out, it was over right there," a former employe of the firm said.

"He was betting that only a small percentage of the people who had their money with him would ever come for their money," said Michael Aguirre, an attorney who represents a number of J. David creditors.

On Feb. 13, one creditor filed an involuntary bankruptcy petition against J. David & Co. and, on March 21, a federal judge ordered the company liquidated. Dominelli said at the time that he welcomed the bankruptcy action as a way to settle the company's affairs, and that he would be glad to work with the court-appointed trustee, Metzger, to find the investors' money. "A lot of people have been hurt -- family, friends, investors and people in the community," Dominelli told the San Diego Tribune in late March. "I want to try to minimize the hurt for these people."

Dominelli was jailed in late April, upon his return from Montserrat. Neither he nor Metzger, who toured the banking centers of In the aftermath of the J. David collapse, many in San Diego are still trying to figure out what went wrong. Even some of his detractors say it's possible that Dominelli simply let a good thing get out of hand. Europe, could find the $112.8 million that was said to be held overseas.

Where had the money gone? No one's quite sure. Metzger estimates that Dominelli was spending it at a rate of about $800,000 a month on himself and on the business. And much of it was paid to investors in the form of profits on their investments. "A lot of money was paid out to people, so clearly there was some money somewhere," one source said. "There were people who put money in there and got their money out, and got it out with the interest returns that he was claiming . . . While there were lots of people who lost money, there were a lot of people who made money."

Metzger, the trustee, is now seeking to get some of that money back, by making deals with investors who got their money out within 90 days before the bankruptcy, when it was clear that the company was ailing.

These so-called preference creditors may be vulnerable to a trustee's suit to recover the money. Currently, however, Metzger is offering a sort of amnesty plan in which the creditors hand over 60 percent of what they took out, retaining 40 percent for themselves. Several investors agreed to the original offer; that percentage has now been reduced to 30 percent, and the offer will shrink further in coming months.

One J. David investor who did get his money out before the fall was Mayor Hedgecock. His involvement with the firm has tarnished what had seemed to be a glittering career that began with his election as mayor in a special race in 1983. Hedgecock, a Republican, was credited with quickly forming a coalition of support in San Diego, winning gains for rich and poor alike and pushing for a limits on growth of the nation's eighth-largest city.

But according to the charges pending against him, Hedgecock got a big boost in that election from the $357,150 invested by Dominelli and Hoover in the political consulting firm that ran Hedgecock's campaign. The charges allege that the money was secretly funneled directly to Hedgecock's campaign in violation of state campaign finance laws. Similar charges are contained in the $1.2 million civil suit brought against the Hedgecock campaign by the state's Fair Political Practices Commission, which found more than 400 alleged violations of campaign financial disclosure laws, including allegations that money had been donated to the campaign in the names of children to circumvent caps on individual donations.

Hedgecock claims that the charges are the unfounded products of a political vendetta being waged principally by the San Diego County district attorney, Ed Miller. "The grand jury charges were timed to come out so that they would be made known before the election but not to be proved before the election," Hedgecock said. He demanded that the case be heard before the election, but the trial does not go into full swing until this week. Miller denies that the charges are politically motivated.

The chairman and president of the city's Chamber of Commerce have demanded that Hedgecock step down. But the mayor responded, "I'm not too unhappy about losing what passes for the establishment in San Diego. I still have the people, as the polls show." Actually, however, the polls show Hedgecock, once the prohibitive favorite in the election, running just slightly ahead of opponent Dick Carlson.

In the aftermath of the J. David collapse, many in San Diego are still trying to figure out what went wrong. Even some of his detractors say it's possible that Dominelli simply let a good thing get out of hand.

"I don't even pretend to know what the truth is," said a one-time J. David executive who resigned from the company just before it failed because he had become disillusioned by Dominelli's actions. "It's brought a lot of grief into people's lives, and a lot of sadness." The full story may never be known. Dominelli soon will undergo competency tests to determine if he will be able to stand trial on the charges. Reportedly, he never will regain full use of his speech and his ability to understand mathematical figures has been impaired.

"It has become clear that he was the only person who knew what was going on," said the former J. David executive. "And maybe he didn't even know."