Sen. Carl M. Levin (D-Mich.) said yesterday that a seven-month congressional investigation of the Wedtech scandal has shown that the Small Business Administration "bent the rules" of the minority business program to help the Wedtech Corp. because of its political connections.
Setting the stage for hearings that start today before the Senate Governmental Affairs subcommittee that he heads, Levin said in a statement that he is particularly troubled by the SBA's decision to let the company stay in the program and remain eligible for no-bid government contracts despite a public stock offering in 1983 that made its presumably disadvantaged minority founder, John Mariotta, "an instant multimillionaire."
"In the summer of 1983," Levin said, "Wedtech raised almost $50 million through its initial stock offering and a new line of credit." In addition, the stock sale left Mariotta with only 26.7 percent of the company's stock, well below the required 51 percent minority ownership, Levin said.
Wedtech, which had managed to win a lucrative Army engine contract in 1982 with help from the Reagan White House, was scheduled to drop out of the SBA program in October 1983. SBA officials, however, gave the company two temporary extensions and then, in January 1984, approved a complicated stock-transfer scheme that purported to give Mariotta 55 percent of the stock.
Levin said the arrangement was a "phony transaction." Other Wedtech insiders put enough of their holdings in escrow under Mariotta's name, but he never paid for the additional shares, was under no binding obligation to do so, and never received delivery of the stock.
"These troubling facts were known to the SBA, but agency officials nonetheless approved a three-year extension of Wedtech's eligibility, relying on legal opinions provided by Wedtech's lawyers," Levin said. "Indeed the transaction was approved at the SBA's regional level on the same day it was submitted, raising serious questions about the integrity of the process."
Sixteen people have been indicted since Wedtech came under combined federal-state investigations that began as a Labor Department inquiry into alleged payoffs for "labor peace" that are still under scrutiny. Former White House aide Lyn Nofziger was indicted on federal conflict-of-interest charges last July by independent counsel James C. McKay. Attorney General Edwin Meese III is under investigation for the role he may have played in assisting Wedtech in 1982 as counselor to the president.
Former SBA regional administrator Peter Neglia of New York, who on Jan. 5, 1984, held Wedtech to be still "owned and controlled by individuals who are socially and economically disadvantaged," was one of seven men indicted in New York on racketeering charges last June.
Others indicted with Neglia included Wedtech lawyers Bernard G. Ehrlich and Richard Biaggi, and Biaggi's father, Rep. Mario Biaggi (D-N.Y.), who allegedly extorted 225,000 shares of Wedtech stock in mid-1983 by threatening to cut off "the SBA's support of Wedtech."
Aides to Levin said the hearings today and Thursday will focus on "who got what out of Wedtech" -- which former executives have admitted milking for millions of dollars in bribes and other illicit payments -- and on the political influences that were brought to bear on the SBA in the now-bankrupt company's heyday.