SBA Faces Court Deadline in Discrimination Case Court Order Forces Release of Crucial Documents

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SBA has vigorously fought a discrimination claim against its investment and lending programs. U.S. Magistrate Judge Alan Kay ordered SBA to turn over documents "within five days" that would undercut its position that it fairly applies approval standards to minorities and women. Industry experts have found bias in SBA's administration of its programs.

Decades of evidence has shown, women business owners and minority business owners have been subject to discrimination in numerous ways, including in lending, access to capital, and basic access to federal contracting opportunities.

It has stalled, resisted and defied protocols, regulation and members of Congress, but the U.S. Small Business Administration (SBA) now faces a federal court order to turn over key documents to Diamond Ventures of Atlanta, in that company's unprecedented discrimination lawsuit against the agency (03-1449GK-District Court of D.C.).

U.S. Magistrate Alan Kay ruled Monday that Diamond, an African-American owned venture capital firm, has a right to see the application submitted to the SBA's Small Business Investment Company (SBIC) program by a sister company and that the documents are relevant to Diamond's case. The SBIC invests in start-up and expanding firms to the tune of $5 billion a year.

In 2002, the SBA denied Diamond's application to participate in the SBIC program. Diamond, which provides venture capital to minority businesses in undeserved areas, sued the agency in 2003, and has consistently triumphed over the SBA's attempts to dismiss or ignore the case. Diamond claims amount to over $75 million in damages, lost opportunity and lost profits.

Judge Kay's ruling will uncover SBA documents that, Diamond maintains, will show the company was qualified under SBIC financing programs, as was another rejected firm owned by females and minorities. Both Diamond and the other firm had approved rankings.

SBA has offered no explanations or evidence to refute Diamond's claims, but has steadfastly maintained for five years that Diamond's managers were not qualified to be licensed in any investment division program.

Other key developments:

  •     Senator Barack Obama, noted in a May 1st letter to SBA Administrator Preston objecting to SBA's Proposed Rule entitled Women-Owned Small Business Federal Contract Assistance procedures, published December 27, 2007 (Fed. Reg. 73285) "Decades of evidence has shown, women business owners and minority business owners have been subject to discrimination in numerous ways, including in lending, access to capital, and basic access to federal contracting opportunities."
  •     Diamond's attorneys believe SBA has not produced all of the e-mails from Bush appointees and other senior employees and managers of the agency and has told Judge Kay that the SBA informed them that e-mails were destroyed despite SBA, GAO, and OMB record retention policies and litigation requirements in a federal lawsuit.
  •     Dr. Timothy Bates, Distinguished Professor of Economics at Wayne State University, noted in his 107-page report to the Court that SBA's evaluation of Diamond was "suggestive" of discrimination and resulted in "disparate treatment" of minority venture capital firms in general. He further concluded the SBA made "systemic misinterpretations" of Diamond's applications and used an analyst who had "never "conducted a review of SBIC applications to review Diamond. Among his several findings, Bates noted that the Kauffman Foundation has sponsored several studies of minority oriented venture funds, showing that they produce returns that compare to and often exceeded the S&P market returns.
  •     Ron Cibolski, former Director of Licensing and Operations for SBIC firms, testified at his deposition that SBA has only approved one of 350 firms managed and owned by minorities in the nearly 10 years he oversaw the program. Cilbolski is considered the foremost authority on the racial identity of SBIC managers.

Citation for Diamond Ventures' lawsuit: 03-1449GK-District Court of D.C.

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JON WILSON
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