The biggest collapse in the history of the Small Business Administration's SBIC program took place virtually in the agency's backyard.

River Capital Corp. of Springfield, after seven years of apparently successful operation as a small business investment company, last year filed for protection under federal bankruptcy laws after being declared insolvent by the SBA.

The final cost of the failure is not yet known, but River Capital owed the SBA $28.5 million when it went under, and SBA officials told a Senate panel this spring that they expect to lose nearly the entire amount.

What went wrong is now the subject of acrimonious debate among SBA investigators, River Capital's managers and the private accountants who audited the firm. But wherever the ultimate fault lies, there is wide agreement that the SBA was not watching River Capital as closely as it should have been.

"Had River Capital not gone belly-up and owed such huge debts, it certainly wouldn't have been apparent" that the SBA suffered from a variety of management problems, said Sen. Dale Bumpers (D-Ark.), chairman of the Senate Small Business Committee. "How can we be certain that the other 370 SBICs in operation today are actually not worse off ... ?"

Founded by attorney Peter Van Oosterhout, River Capital -- like most SBICs -- invested in high-risk ventures with the expectation that while many would fail there would be enough successes to keep River Capital in business and provide its investors a profit.

The SBA has refused to disclose an inventory of River's holdings. But according to bankruptcy court papers filed in Alexandria, they include interests in companies involved in businesses ranging from apple dehydration to discount stock brokerage to precious metals. A $15,000 loan was made to a chain of radio stations in Ohio and Michigan.

Its largest investment, $4.5 million, was in a hazardous waste incinerator in Rhode Island, which was expected to become a source of profits. But the project has since failed to win necessary regulatory approvals, and the prospects for achieving any profits are uncertain at best.

Another venture, a $770,000 loan to American Consolidated Mining Co. of Pleasant Grove, Utah, was a victim of international politics. In the mid-1980s, as the company was happily producing tungsten along with some copper, lead and silver, the U.S. government allowed the importation of cheap tungsten from China, said chief executive William Moeller.

"We'd still be operating to this day" but for that decision, which drove prices so low that no American producer could operate profitably, and the company shut down, Moeller said. However, he added that U.S. policies have swung back, imports are being controlled and the price has been creeping back up. As a result, he said, the company hopes to resume operations soon and to be able to make payments on River Capital's loan when they become due next year.

Van Oosterhout did not respond to requests for comment, but he told the Washington Business Journal in May that "we had been buying and selling investments at profits for years." The company failed, he said, in part because of "bad timing issues. We were highly leveraged and the stock market crashed."

The issue to Bumpers and other critics, however, is how River Capital was allowed to borrow so much money to buy so many stocks that now appear to have little value.

The SBA's inspector general told Bumpers's committee that the company suffered from poor accounting practices and added that "these deficiencies were not, in our opinion, appropriately identified and reported upon" by its outside auditor, Arthur Andersen & Co.

Arthur Andersen, for its part, told the panel that "responsibility for determining the 'fair value' of an SBIC's investments properly resided solely in original with its management and board of directors ... because only management and the board are in a position to understand and evaluate the promises and pitfalls of these investments."