SDSU Foundation Wins Release of $1.2 Million in Grant Money : Litigation: A federal judge orders the Department of Commerce to turn over the contested funds while audits of a disputed school program continue.

A federal judge Friday ordered the Department of Commerce to release $1.2 million in contested grant money to the San Diego State University Foundation.

“Our reaction is one of exultation and joy,” said James Feldesman, the Washington-based attorney hired by the nonprofit foundation, the university’s grant-giving and fund-raising arm. “We’re really very happy.”

Last month, the foundation filed suit in U.S. District Court, accusing the Department of Commerce of unlawfully withholding grant money while audits concerning a disputed school program remained unresolved.

On Friday, Federal Judge Rudi M. Brewster ordered the grant money restored, provided the foundation pays the Department of Commerce $235,000, pending the outcome of a lengthy investigation into the Los Angeles branch of a minority business-training program run by SDSU.

Based on a series of audits that began in 1983, the Department of Commerce had accused the foundation--which administers Minority Business Development Centers in Los Angeles, San Diego and Tucson--of mismanaging the Los Angeles program and the funds required to run it.

The Commerce Department was seeking from SDSU the repayment of a $100,000 debt, based on the first audit, and an additional $135,000, based on a 1986 audit. The foundation continues to maintain that it did not mismanage the program, and, furthermore, was denied due process in contesting the department’s findings.

Brewster ruled Friday that the Commerce Department had withheld information pertinent to the case, and he ordered commerce officials to make available to the foundation all notes and interviews relevant to the audits.

He said the only items the Commerce Department could “legally and appropriately” withhold would be private inter-departmental memos that might have figured in the audits.

A third, preliminary audit into the hotly contested Los Angeles program, which seeks to widen minority participation in that city’s business community, maintained that the SDSU Foundation owed the department an additional $1.6 million.

“I’ve never seen a federal agency come down on an institution the way the Department of Commerce is coming down on the San Diego State (University) Foundation,” Feldesman said last month, when the suit was filed. “I don’t know what possessed them to drop the hydrogen bomb on the foundation.”

Donald F. Shanahan, the U.S. attorney representing the Commerce Department at Friday’s hearing, had a different idea about the judge’s decision.

“I think the department prevailed,” Shanahan said of Brewster’s findings. “Our position all along has been that, if the foundation either paid the money we feel they owe, or agreed to a repayment schedule, that they could be available for the grants,” meaning the $1.2 million in award money that had been withheld, pending the outcome of the case.

At issue in the matter, which has dragged on for years, is a multimillion-dollar program, conceived by the Department of Commerce and operated by the foundation, to increase minority involvement in the Los Angeles-area economy. One of the audits alleges that managers of the program engaged in fraud and mismanagement in trying to exaggerate the program’s success.

The program is the nation’s largest recipient of federal money from the Minority Business Development Agency, a branch of the Commerce Department. The SDSU foundation manages similar programs in San Diego and Tucson, but foundation officials said those are not in question.

Under terms of its grant contracts with the agency, the foundation is supposed to help minority business owners obtain loans, bonds and contracts. But, according to the most recent audit, the foundation allegedly uses phone pitches and bank contacts to create the impression that it has assisted minority-owned oil companies, real estate firms, bridal shops, liquor stores and hundreds of other businesses.

Frea Sladek, associate general manager for the foundation, has called the charges “ridiculous.”

And, Feldesman said last month, “We’d be fools to have the court give us (a hearing) if we weren’t convinced we’d prevail. We’re simply asking for due process and a fair hearing.”

Brewster said he will retain jurisdiction in the matter, but the date of a future hearing was not set. He ordered commerce officials to provide to SDSU all memos and work papers related to the audits, and asked the foundation to either pay or work out a schedule of repayment agreeable to the Department of Commerce, and for both parties to do so “within a reasonable time.”