Ivanhoe Donaldson, a former D.C. deputy mayor who served as Mayor Marion Barry's closest political adviser for a decade, pleaded guilty yesterday to charges that he systematically stole about $190,000 from the city government between 1981 and 1983 and then orchestrated a cover-up of his misuse of a special city fund.
Donaldson, 44, who was employed as a vice president of E.F. Hutton & Co. after leaving government until he resigned from Hutton in September, appeared subdued as he pleaded guilty before U.S. District Court Judge Gerhard A. Gesell to a criminal information charging him with interstate transportation of fraudulently obtained funds, obstruction of justice, and filing a false 1983 federal income tax return.
He could be sentenced to up to 23 years in federal prison and fined $360,000, and also could be held liable for the cost of the prosecution and possible civil tax penalties.
Gesell, who told Donaldson he was eager to learn "how you got into this mess," set sentencing for Jan. 27 and released Donaldson on a $10,000 bond.
Yesterday's 1 1/2-hour proceeding culminated a year-long investigation headed by U.S. Attorney Joseph E. diGenova and marks the downfall of the intense and brilliant Donaldson, the son of a New York City policeman who rose from being a Student Nonviolent Coordinating Committee organizer in the South to become a political adviser to Barry and many other big-city black politicians.
His negotiated guilty pleas deliver a political blow to Barry's administration, already stung by a series of embarrassing scandals in the housing department and other agencies. The mayor himself was a target of a federal drug investigation but was never charged. Barry, who plans to seek a third term in 1986, said yesterday that Donaldson's thefts and efforts to obstruct a probe by then-D.C. Inspector General Joyce Blalock would not seriously damage his administration.
Sources close to the federal investigation said that the year-long grand jury probe turned up no evidence to implicate Barry or to suggest he received any of the money. "It's just not there," the source said.
"It doesn't even come close to me or anyone around me," said Barry, who was attending a National League of Cities conference in Seattle yesterday. "There's no slightest hint of any connection. . . . It's not going to hurt us. People know of my high integrity."
Sen. Charles McC. Mathias Jr. (R-Md.), chairman of the District subcommittee of the Governmental Affairs Committee, and John Hechinger, Democratic National Committee member from the District, voiced concern yesterday that critics of the city would seize on the Donaldson case to attack home rule. At a luncheon, Mathias said he hoped the incident wouldn't "inadvertently result in bringing down the whole structure of home rule."
Blalock, who has left the District government since uncovering the initial evidence of Donaldson's wrongdoing and now serves as inspector general of the U.S. Government Printing Office, said yesterday, "This case shows there are some bad apples. But it's an excellent example of what you hope government will be able to do -- turn in its own defectors."
Federal prosecutors charged that while he headed the D.C. Department of Employment Services and, later, as deputy mayor for economic development, Donaldson illegally arranged to issue city checks in the names of two longtime friends, a former campaign associate and an aunt who lives in New York City, and then pocketed most of the funds.
Donaldson, described by prosecutors as an extravagant spender whose close political ties to the mayor made him a feared and formidable force, also used compliant city contractors as middlemen to funnel District funds to himself, according to prosecutors, and once used $1,645 of city funds to pay to have his Mercedes-Benz repaired.
As part of one scheme to siphon off District funds, Donaldson arranged to have Employment Services employes arbitrarily add $20,000 to an existing contract without providing justification. He also arranged to double-bill the city for a telephone survey of D.C. residents conducted by a New York consulting firm and pocketed $36,000 of the funds.
In March 1982, while on leave from the city government to manage Barry's reelection campaign, Donaldson instructed the campaign committee to issue a check for $1,800 in the name of an old friend for research services. Donaldson then deposited the check, bearing a forged endorsement, in his personal checking account, according to prosecutors.
Several high-level city officials -- including Matthew Shannon, the current director of the Employment Services department; James George, a deputy director and controller in the department; Sandra Hill, a former agency employe still with the city; Lillian Manson-Neal, a special assistant to the Employment Services deputy director; Robert Robinson, a member of Barry's administrative staff; and Curtis R. McClinton, who replaced Donaldson as deputy mayor -- were used by Donaldson in his schemes, prosecutors said. None has been accused of criminal wrongdoing.
DiGenova said yesterday that the investigation is continuing. Sources said that prosecutors are considering asking Donaldson to appear before the grand jury after he is sentenced. Donaldson was not called to testify during the investigation.
Sources close to the investigation said that Donaldson was spending roughly twice what he was earning from his government jobs at the time of the thefts. During that same period he was sued by the Visa credit card company and by contractors who claimed they hadn't been fully paid for work on his condominium on Wyoming Avenue NW.
In one instance, Donaldson invoked the name of Jesse Jackson and the mayor to persuade a contractor, Cornbread Givens, president of Poor Peoples Development Foundation Inc., to participate in one of the diversions of funds.
DiGenova, whose investigations of drug use by city officials and wrongdoing in the city's Bates Street housing development have caused major political furors, declined to comment yesterday on Donaldson's guilty pleas. "Everything we have to say we will say at the time of sentencing Jan. 27," he said.
The complicated federal investigation was conducted by Assistant U.S. Attorneys Daniel J. Bernstein and David F. Geneson of the Special Prosecutions Section, with the assistance of G. Donald Hickman and special agent Edward J. Murphy of the FBI and Internal Revenue Service agent Herbert Berl.
The investigation was touched off in July 1984 by Employment Services Director Shannon, a protege of Donaldson's, who called D.C. police to tell them about a possible misuse of department funds involving two midlevel employes. That case prompted the federal grand jury to begin investigating the department.
Barry, meanwhile, reacted by ordering Blalock to investigate the financial controls of the department, and she quickly began turning up evidence implicating Donaldson, who had served as acting director of the department between October 1980 and May 1982. Blalock had discovered a special administrative fund -- at times containing as much as $250,000 -- that was kept separate from the city's centralized accounting system and was not subject to normal reviews.
The obstruction of justice charges stemmed from Donaldson's efforts to persuade four persons to submit false affidavits to Blalock and to lie in grand jury testimony.
The tax evasion charge stemmed from the fact that Donaldson reported income totaling $97,355 for 1983 when in fact he had obtained an additional $64,000 of income through fraudulent means.
By depositing an unlawfully obtained $36,000 check in the Maryland National Bank in Baltimore, Donaldson violated a federal statute against the interstate transportation of money taken by fraud. CAPTION: Pictures 1 and 2, Ivanhoe Donaldson . . . released on $10,000 bond; Ivanhoe Donaldson with his defense attorneys, Robert Watkins and Rick Hoffman in court yesterday. Washington Post photos