United States Magistrate Judge Alan Kay ruled Monday that Diamond Ventures, embroiled in litigation for five years in an unprecedented discrimination lawsuit against the U.S. Small Business Administration (SBA), that the application  to a sister venture capital program is “relevant” and all documents are to be turned over in five days. Diamond has challenged why SBA denied it approval to operate where it would lend to and invest in minority and women owned firms in underserved and low-moderate-income areas when the SBA internal rankings and scoring showed that Diamond was qualified and should have been approved to operate.  Diamond Ventures, an Atlanta based venture firm owned by African-Americans, filed the first ever lawsuit in 2003 against SBA for discrimination in its Small Business Investment Company (SBIC) program.

The case (03-1449GK-District Court of D.C.)  filings today unveil the inner workings of a program that deploys venture capital to many of the nation’s start-up and expanding firms to the tune of more than $5 Billion a year. Diamond’s claims amount to over $75 million in damages, lost opportunity and lost profits.

Key developments:

• U.S.  Magistrate Judge Kay, under special authority of presiding District Court Judge Gladys Kessler ruling will  uncover SBA documents  showing that Diamond was qualified under SBIC financing programs, along with a firm owned by females and minorities.

Curiously, neither firm was selected, despite their approved rankings, to be licensed operate to deploy capital in a SBA sponsored financing program. SBA has not offered any explanations or evidence  contrary to the documents to be turned over but has steadfastly maintained  for five years that Diamond’s managers were not qualified to be licensed in any investment division program.

• 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 has “actively sought” his insight since the 1970’s including testimony and reports studying their programs during that time frame.  Dr. Bates commented that SBA’s evaluation  of Diamond was “suggestive” of discrimination and resulted in “disparate treatment” of minority venture capital firms in general. He further commented on depositions conducted of SBA personnel showing that they 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 numerous conclusions, he noted that  the Kauffman Foundation  has sponsored  several studies of  minority oriented venture funds and the studies show 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. Mr. Cilbolski noted that he is the primary person with “institutional knowledge” of the racial identity of SBIC managers.  

Media Contact:
John Wilson  877-342-8227  This email address is being protected from spam bots, you need Javascript enabled to view it

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