In April 1979, the District of Columbia Investment Co., a federally subsidized agency established to assist small, disadvantaged minority businesses, awarded $450,000 in financial backing to a wine-importing firm partially owned by the head of the D.C. Democratic Party, Robert B. Washington Jr., who is also the agency's lawyer.
The $450,000 cash infusion -- nine times the size of the average loan made by the agency -- violated no laws, even though: Washington, a politically well-connected lawyer, is wealthy; Morris Bisker, who owns 18 percent of the firm's stock, is white; and Bisker and Vernon Coleman, who owns another 18 percent, also own the third largest beer distributorship in the city.
Interchanging the various hats he has worn in public and private life, Washington skillfully knitted together his interests in the transaction. He temporarily stepped aside as the agency's lawyer to avoid conflict of interest, while at the same time helping the firm gain sufficient financial aid to allow him to say recently that sales "have picked up substantially" since the assistance was granted.
The company, Novaimport Inc., is importing millions of dollars worth of wine each year; one of its wines has become the house brand for a major supermarket chain; and the future portends "great progress," Washington said.
In this apparent success story an abuse of Washington's position as counsel to the federally funded lender? Is it contrary to the intent of a law largely designed to help mom-and-pop businesses?
"Absolutely not," Washington said. "I am cleaner than Caesar's wife. I don't think I have done one thing wrong."
In a breakfast interview at a downtown hotel recently, Washington angrily said there was no relevance to questions about details of the loan, which he considers a private business transaction even though it involved federal funds. Joseph Jackson, president of DCIC, summoned by Washington to the lawyer's Connecticut Avenue office during an interview with reporters, discussed parts of the financing package, at Washington's request.
The story of the $450,000 transaction is one example of how political power and influence beget money in the nation's capital.
Washington is a partner in what has been one of the city's most successful law firms, Danzansky, Dickey, Tydings, Quint and Gordon. He is on a first-name basis with many of the city's powerbrokers. He has the ear of Mayor Marion Barry. He is a close friend of former City Council chairman Sterling Tucker. His Mercedes-Benz bears D.C. license plate No. 2 -- a prestigious adornment bequeathed to him by City Council Chairman Arrington Dixon.
Since about 1975, as best as Washington says he can remember, he has been the counsel to the District of Columbia Development Corp. and its private, profit-making subsidiary, DCIC. The latter agency is licensed and partially subsidized by the Small Business Administration (SBA) to provide financial backing to promising business ventures that are controlled by persons who are "socially or economically disadvantaged" minorities.
Sometimes in 1978, Coleman, who along with Bisker owns one of the most successful beer franchises in the city, asked his friend Washington to invest in the struggling wine company, founded in 1977 by Chilean immigrant Alfredo Bartholomaus.
"He [Coleman] thought it was a great investment opportunity," Washington explained, because the small firm was importing relatively inexpensive wines from Chile at a time when people were looking for alternatives to higher-priced European and California wines.
"Vernon brought it to me because we were friends," Washington said, adding that he and Coleman were involved in other business deals he would not discuss. "We've known each other for a long time. Friends take care of friends."
In December 1978, Washington bought 20 percent of the company for "a substantial" amount which he described only as more than $10,000. Coleman and Bisker, co-owners of American Sales Co., also owned 20 percent each and Bartholomaus, 40 percent. American Sales is the exclusive distributor of Schlitz beer products in the city.
Washington then flew to Chile to negotiate a contract that gave Novaimport the North American distributing rights for two Chilean wines. But to get the contract and market the wines, Valdivieso and Saint Morillon, coast to coast the company needed an infusion of capital.
Within three months of Washington's purchase of his 20 percent interest, Novaimport applied for the backing to DCIC.
"It was probably my idea to apply to DCIC," Washington recalled.
Coleman, Bartholomaus and Washington took DCIC's vice president, Abraham Beaton, to Chile at Novaimport's expense to acquaint Beaton with the Chilean wineries and strength of the business opportunity.
On April 26, 1979, about a month after applying for the financial backing, Novaimport received from the DCIC board of directors a commitment for a $100,000 direct loan, a $250,000 line of credit, and an additional $100,000 for 10 percent of the liquor company's stock -- in effect an interest-free cash infusion.With DCIC's stock purchase, Washington, Bisker, and Coleman owned 18 percent of the company and Bartholomaus, 36 percent.
The $100,000 loan, the second largest committed by DCIC in 1979, was made at the agency's prevailing rate, which because of government subsidy, is lower than what Novaimport would have had to pay at a commercial bank, according to banking officials.
The investment company's financial backing was made contingent on the SBA's granting Washington an exemption from its conflict of interest regulations dealing with loans to counsel such as Washington.
To avoid conflict of interest, Washington temporarily stepped aside as the leading agency's attorney during consideration of the wine company's financing. "I told them [the agency] they needed their own lawyers. I thought it was terribly important," he said.
The lender did obtain another lawyer for this transaction, and Washington, admittedly drawing on his experience as the agency's lawyer, then advised the wine company on how to get the financial backing. After the loan was approved, Washington resumed duties as a lawyer for the lending agency -- a post he holds today, though he says he currently does little work for them.
Joseph Newell, an SBA official, reviewed Washington's role in the loan transaction. A legal notice was published in a local newspaper advertising the financing arrangement and Washington's involvement in it, and soliciting comment from the public. None was received.
On Dec. 31, 1979, Newell granted the exemption because, he said in an interview, he had received no adverse comments about the transaction and he had determined that it "was not detrimental to anybody." The financing was formally turned over to Novaimport in March 1980.
Technically, DCIC is a Minority Enterprise Small Business Investment Company (MESBIC), one of more than 100 throughout the nation. Congress passed enabling legislation for such companies in 1972 with the intent of directing SBA loans through private companies to aid minority business who were disadvantaged.
But Congress left it up to the SBA to determine who met that criteria. The SBA determined that those eligible for such assistance could include poor people of any race, ghetto dwellers, those with physical handicaps or limited education, Vietnam veterans, those who could prove "inability to compete effectively in the marketplace because of prevailing or past restrictive practices," or those lacking the resources to otherwise be "equal . . . in society." But the SBA left the final determination to the investment companies.
Asked if he considered himself a disadvantaged minority, Washington, a Harvard Law School graduate who lives in one of the city's wealthier neighborhoods, said "They [the investment company] made that determination. In my mind, I am. I'm back."