Suit prompts lawmakers to eye SBA policy

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Congressional lawmakers on both sides of the aisle are monitoring an ongoing lawsuit against the Small Business Administration to determine whether new procedures are needed to curtail discrimination in the agency's support of minority-owned venture capital firms.

Sen. John Kerry, Massachusetts Democrat; Sen. Orrin G. Hatch, Utah Republican; and Rep. Nydia M. Velazquez, New York Democrat, have inquired about the policies by which the Small Business Administration (SBA) determines what companies will be funded under its Small Business Investment Co. (SBIC) financing program.

Mr. Kerry said in a letter to the SBA that aid to minority- and woman-owned businesses has decreased in all but one year during the past six years.

"Less than 1 percent of the $250 billion in venture capital dollars nationwide is made available to meet the needs of the country's 4.4 million minority business owners," Mr. Kerry said.

The outcome of the lawsuit brought by C. Earl Peek and his partners at Diamond Ventures LLC could lead to new practices allowing minority-owned venture capital firms to invest more easily in minority- and woman-owned businesses in the rural South.

"I wanted to invest in businesses in the Southeast where I am from — Atlanta, Georgia, Florida, South Carolina — but when we went through the SBA we were rejected without any real reasoning as to why," Mr. Peek said.

His company is asking the court to force the SBA to grant his request for an SBIC license in addition to the $50 million for which the firm originally applied in 2002.

In a letter sent to the administration last year, Mr. Hatch requested that the SBA work with Mr. Peek outside of the litigation to address the issue.

"It seems that Diamond Ventures and other minority-owned companies would like to see their concerns addressed directly by your agency," Mr. Hatch said.

The SBA, in its original letter to Diamond Ventures, said company partner Lonnie Saboor, who is black, lacked the necessary experience in the areas of "sales and mergers" and initial public offerings — when companies offer stock to the public for the first time.

The SBA also noted that Mr. Saboor did "not have experience in exiting investments" through either creating an IPO, selling a company or other means to ensure a profit gain.

The SBA also questioned the veracity and accuracy of some of the partner's resumes as well as their law and accounting educational backgrounds.

Mr. Peek said the discrepancies were corrected, but that Diamond was still denied its license.

He said the SBA has licensed only two majority-owned black firms and that less than 5 percent of the 450 licensed SBIC firms are owned by blacks, Hispanics, women, American Indians or Asians.

"The real goal is to get the SBA to revise its procedures toward minorities and women in the application process and to have more minority representation on the selection committee," Mr. Peek said.