Environmental Affairs Management, Inc., No. BDP-119 (May 3, 1999)
Docket No. BDPT-98-08-14-01

     
                    UNITED STATES OF AMERICA
                  SMALL BUSINESS ADMINISTRATION
                 OFFICE OF HEARINGS AND APPEALS
                        WASHINGTON, D.C.

                                ) 
IN THE MATTER OF:               ) Docket No. BDPT-98-08-14-01
                                ) 
Environmental Affairs           ) Decided:  May 3, 1999
Management, Inc.                )
                                
                           APPEARANCES
                                
Steven  W.  Mastrantonio,  Esq.,  Amer  Cunningham  Brennan  Co.,
L.P.A., for Petitioner Environmental Affairs Management, Inc.

Andrea L. Mayer, Esq., Michael D. Schattman, Esq., for Respondent
Small Business Administration.

                             DIGEST
                                
A  new  regulation  will  not apply in a  termination  proceeding
completed  before,  but  appealed  after,  the  new  regulation's
effective  date  if the new regulation makes no change  affecting
the  decision  on  appeal.  Thus, where knowing submission  of  a
false  statement  to  the  SBA was good cause  for  8(a)  program
termination  under both the former and the new  regulations,  the
Administrative Law Judge (ALJ) will apply the old  regulation  on
appeal.

The  ALJ  must  sustain the SBA's decision to terminate  an  8(a)
program participant unless a review of the written administrative
record  demonstrates  that  the SBA's  conclusion  that  an  8(a)
program  participant falsely stated he is the 100% owner  of  the
participant is arbitrary, capricious, or contrary to law.

The  ALJ's review of the administrative record is narrow and does
not  permit  him to substitute his own judgment for that  of  the
SBA.   The  ALJ must examine whether the SBA considered  all  the
facts  presented as well as the laws and regulations  that  guide
the decision-making process.  Then, he must determine whether the
SBA  made a clear error of judgment in its decision before he can
conclude the SBA's decision is arbitrary, capricious, or contrary
to law.

A  clear  error of judgment can be found if the SBA (1) fails  to
properly apply the law and regulations to the facts of the  case;
(2)  fails  to  consider an important aspect of the problem;  (3)
offers an explanation for its determination that runs contrary to
the evidence; or (4) provides an implausible explanation that  is
more  than a difference between the ALJ's views and those of  the
SBA.   In sum, the SBA must articulate a satisfactory explanation
for its action, including a rational connection between the facts
found and its determination.

                         FINAL DECISION
                                
ARKOW, Administrative Law Judge:

     Petitioner  Environmental  Affairs  Management,  Inc.  (EAM)
appeals   a   decision   by   the   Respondent   Small   Business
Administration  (SBA)  terminating  it  from  the  8(a)  program1
because  EAM's president, Mr. John Braswell, knowingly  submitted
false  information  to  the SBA in EAM's  1996  and  1997  annual
updates  and  possibly in its application for 8(a) certification.
The  SBA alleges Mr. Braswell falsely claims to be the 100% owner
of  EAM  because Mr. Gregory Bobonik owns a 49% interest in  EAM.
EAM  contends  the  termination  is  arbitrary,  capricious,  and
contrary  to law because Mr. Braswell has been EAM's  only  owner
since  its admission into the 8(a) program.  I agree and conclude
the  SBA's  decision  terminating EAM from the  8(a)  program  is
arbitrary, capricious, and contrary to law.

                          Jurisdiction
                                
     Jurisdiction  to  decide this appeal is proper.   15  U.S.C.
Section 637(a)(9)(A), (B)(ii); 13 C.F.R. parts 124 and 134 (1999).  
The appeal is timely.  13 C.F.R. Section 134.202(a) (1999).

                              Issue
                                
     Whether the action of the SBA terminating EAM from the  8(a)
program is arbitrary, capricious, or contrary to law.  15  U.S.C.
Section 637(a)(9)(C); 13 C.F.R. Section 134.406(b) (1999).

                      Procedural Background
                                
     On  November  26,  1997, the SBA advised Mr.  Braswell,  the
President  of  EAM (an Ohio corporation) and the individual  upon
whom  EAM's  8(a)  eligibility was based,  that  it  intended  to
terminate  (letter  of intent to terminate)  EAM's  8(a)  program
participation.   Administrative Record (AR) Ex.  28.   Citing  13
C.F.R. Section 124.209(a)(19) (1997),2 the SBA stated  the  reason  
for the proposed termination was that EAM knowingly submitted false
information to the SBA and EAM's principal, Mr. Braswell, knew or
should  have known the information was false.  See id.   The  SBA
concluded  Mr. Braswell falsely represented himself as  the  100%
owner of EAM in EAM's 1996 and 1997 annual updates to the SBA and
"possibly" in its 8(a) application.  See id.  The SBA pointed  to
contradictory   information   in   EAM's   1996    tax    return,
Mr.  Braswell's  personal  tax return, and  EAM's  Ohio  Minority
Business  Enterprise  certification (MBE), all  of  which  stated
Mr. Bobonik owned 49% of EAM's shares.  Id. at 2.

     On  July 10, 1998, after considering information provided by
EAM  to  refute  the  allegations in  the  letter  of  intent  to
terminate, including EAM's claim that its former accountant  made
a mistake, the SBA advised EAM that its response to the letter of
intent to terminate was not credible.  AR Ex. 3 at 3.  Concluding
EAM  had  not  overcome the grounds for the proposed termination,
the  SBA  terminated  EAM  from  the  8(a)  program  (termination
letter).  Id. at 3-4.

     The  SBA reasoned (1) Mr. Braswell's signature on EAM's 1996
tax  return  and its 1996 Ohio FT-1120-S, Notice of S Corporation
Status,  both  stating  Mr. Braswell is  a  51%  shareholder  and
Mr.  Bobonik  is  a  49%  shareholder,  belied  EAM's  claim  its
statements    resulted   from   an   accountant's   error;    (2)
Mr.  Braswell's confusion as to whether Mr. Bobonik  relinquished
his  holdings  in June 1994, rather than May 1993, resulted  from
the  fictional  nature of Mr. Bobonik's divestiture  of  his  EAM
shares,  rather than mere inadvertence; and (3) EAM's  subsequent
amendment  of  its  tax  returns after  the  SBA  discovered  the
falsehood did not cure the original falsehood.   Id. at 3.

     EAM  timely appealed the termination decision on August  14,
1998.  Appeal Petition.

     On  December 1, 1997, pursuant to 13 C.F.R. Section 124.211 
(1997), the SBA suspended EAM from receiving 8(a) contract support
pending  completion of the termination action.  EAM appealed  the
suspension.   On  February  8, 1999, the  suspension  was  lifted
because  the  SBA failed to establish by adequate  evidence  that
Mr.  Braswell,  on  behalf of EAM, made false statements  in  its
annual  updates  and  possibly in its 8(a) application  and  that
suspension  was  necessary  to  protect  the  interests  of   the
government.  The evidence showed Mr. Braswell had been  the  100%
owner  of EAM since its admission into the 8(a) program.   Matter
of Envt'l Affairs and Management, Inc., SBA No. MSB-621 (1999).

                        Findings of Fact
                                
           I.   EAM's Admission into the 8(a) Program.
                                
     EAM  applied for admission into the 8(a) program on May  22,
1992.  AR Ex. 84 at 1.  Its application stated Mr. Braswell owned
51% of EAM's shares and Mr. Bobonik owned the other 49%.  Id.  at
3.   Because Mr. Bobonik owned shares in another business in  the
same  or similar line of business as EAM,3 the SBA declined EAM's
application.   AR Ex. 83.  Thereafter, EAM furnished  the  SBA  a
copy of a "Share Exchange Agreement," dated May 12, 1993, stating
Mr.  Bobonik "will exchange on an even basis his shares  in  EAM,
Inc., for Braswell's shares in ESM, Inc., and Brasbob, Inc."  See
AR   Ex.  81.   Pursuant  to  the  agreement,  Mr.  Braswell  and
Mr.  Bobonik  each  agreed to resign from all  directorships  and
offices   of   the  respective  concerns  of  which   they   were
surrendering shares.  Id.  EAM also furnished the SBA a  copy  of
stock  certificate number 1, dated October 27,  1988,  certifying
Mr. Bobonik owned 49 shares of EAM.  AR Ex. 82 at 1.  The reverse
side   of  the  certificate,  dated  May  11,  1993,  was  marked
"Canceled" and signed, "John W. Braswell - president."  AR Ex. 82
at 3.  Finally, EAM furnished the SBA a copy of stock certificate
number  3, dated May 12, 1993, and signed by Mr. Braswell  twice,
once   as  president  and  once  as  secretary,  certifying  that
Mr.  Braswell owned 49 shares.  AR Ex. 82 at 2.   A "stub"  along
the  top  edge  of stock certificate number 3 stated  certificate
number  3  for  49  shares  was issued  to  Mr.  Braswell  and  a
certificate  for 49 shares, the certificate number  and  date  of
which  are illegible, was received.  Id.  Based on this evidence,
the  SBA concluded Mr. Bobonik relinquished his shares in EAM and
Mr. Braswell became the 100% owner of EAM.  See AR Ex. 76 at 1.

     Relying  on  this  and  other evidence  submitted  in  EAM's
request for reconsideration and subsequent appeal of SBA's denial
of  program admission, the SBA agreed on June 3, 1994,  to  admit
EAM  into the 8(a) program.  See AR Ex. 72 at 1-2.  On August  3,
1994, Mr. Braswell signed EAM's participation agreement with  the
SBA, permitting EAM's admission into the 8(a) Program.  Id. at 6.

                    II.  Income Tax Returns.
                                
     Before  this  termination action commenced, EAM submitted  a
copy  of its 1996 original federal return, prepared by its former
certified  public accountant (CPA) and signed by Mr. Braswell  as
taxpayer's  president.   It  stated  Mr.  Braswell  owned  a  51%
interest in EAM and Mr. Bobonik owned 49%.  AR Ex. 63 at 5, 6.

     While  the  termination  action was pending,  EAM  submitted
copies  of several amended tax returns to the SBA to support  its
contention that the original tax returns resulted from a mistake.
The SBA considered copies of the following documents:

     (1)  EAM's  unsigned original 1994 Form 1120-S, U.S.  Income
Tax  Return  for an S Corporation, prepared by EAM's former  CPA,
which  stated  Mr.  Braswell owned a  51%  interest  in  EAM  and
Mr. Bobonik a 49% interest, AR Ex. 68;

     (2)  EAM's  amended  1994, 1995, and 1996  federal  returns,
dated  December  16, 1997, signed by Mr. Braswell  as  taxpayer's
president  and  prepared  by  EAM's  current  CPA,  which  stated
Mr.  Braswell owned a 100% interest in EAM and Mr. Bobonik  a  0%
interest, AR Ex. 19 at 2-8; AR Ex. 22, Ex. D, at 1-6; id., Ex. C,
at 1-13;

     (3)  Gregory  A.  and  Judy  L.  Bobonik's  (the  Boboniks')
unsigned  amended 1994, 1995, and 1996 Ohio personal tax returns,
prepared  by EAM's current CPA, which stated, "the correction  is
being  made  to  properly reflect 100% ownership and  profit/loss
allocation to John Braswell," AR Ex. 11 at 10-11; id. at 2-4; id.
at 5-7;

     (4)  The  Boboniks' unsigned amended 1994,  1995,  and  1996
federal personal tax returns, dated February 3, 1998, prepared by
EAM's current CPA, which stated, "the correction is being made to
properly  reflect  100% ownership and profit/loss  allocation  to
John Braswell," id. at 8-9; id. at 6-7; id. at 3-4; and

     (5)  John  W.  and  Felicia A. Braswell's  (the  Braswells')
unsigned  amended  1994,4  1995,5 and  19966  Ohio  personal  tax
returns,  dated February 3, 1998, prepared by EAM's current  CPA,
which  stated  the  amendment resulted in  the  Braswells'  being
entitled to refunds each year, id. at 15; id. at 14; id. at 16.

               III.  Corporate Books and Records.
                                
     In  addition to EAM's stock certificates and the  stub,  see
supra  Part I, EAM submitted to the SBA copies of minutes of  its
directors and shareholders meeting held on May 12, 1993.  AR  Ex.
58  at 98.  The minutes stated the articles and by-laws would  be
amended  to reflect EAM would have one director and Mr.  Braswell
was  elected director.  They were signed by Mr. Braswell, as sole
shareholder.  Id.

     Although  the  SBA generally requires an 8(a)  applicant  to
include  copies of its articles of incorporation and  by-laws  in
its  application,  EAM's were not included in the  administrative
record, which was certified as complete.

                        IV.  Other Facts.
                                
     In  1995, 1996, and 1997 annual update reports submitted  to
the  SBA, EAM stated Mr. Braswell owned 100% of the firm.  AR Ex.
69,  66,  and  62, at  2.  In each update form, the SBA  directed
EAM  to  "[a]ttach a copy of [its] most recent year-end  business
tax returns including all schedules and statements."  Id. at   4.
However,  only the 1997 update included a corporate  tax  return.
The 1996 return attached to the 1997 update contradicted the 1997
update.

     An Ohio FT-1120-S, Notice of S Corporation Status, dated May
16,  1996, signed by both EAM's former CPA, as preparer,  and  by
Mr.  Braswell,  as president, stated Mr. Braswell owned  51%  and
Mr. Bobonik owned 49% of EAM.  AR Ex. 65.

     In  a letter dated November 25, 1997, Mr. Braswell responded
to the SBA's questions concerning EAM's ownership. AR Ex. 32.  In
the letter of explanation, he stated (1) Mr. Bobonik relinquished
his  EAM  shares in June 1994 and (2) EAM's tax returns contained
"erroneous information."  Id.

                        V.   Affidavits.
                                
     In  an  affidavit sworn to December 22, 1997,  Mr.  Braswell
affirmed  the truth of the information in EAM's 8(a)  submissions
and  admitted  there were mistakes resulting from an accountant's
error.  AR Ex. 2 at Attachment 1.  He stated that (1) on May  12,
1993, all of Mr. Bobonik's shares in EAM were transferred to him,
leaving  him  the 100% owner of EAM; (2) the transfer  of  shares
from  Mr.  Bobonik  to him was memorialized in a  Share  Exchange
Agreement entered into on May 12, 1993; (3) at about the same
time, the stock certificate previously issued to Mr. Bobonik  was
cancelled; (4) since the transfer, he has continued to  own  100%
of  EAM's shares; (5) in 1994, after Mr. Bobonik transferred  the
EAM stock certificate, EAM switched accounting firms and retained
another  firm's (former CPA) services through the 1996 tax  year.
Id.

     Mr.  Braswell's affidavit further stated that (1) at no time
did  he tell EAM's former CPA, or otherwise try to deceive  EAM's
former  CPA  into believing, that anyone other than  he  had  any
interest  in  EAM;  (2) he believed that, due to  the  change  in
accountants  in 1994, the tax returns erroneously  reflected  the
distribution  of profits to Mr. Bobonik; (3) upon  learning  that
EAM's   1996  tax  return  incorrectly  distributed  profits   to
Mr.  Bobonik,  EAM's current CPA amended the  returns  for  1994,
1995,  and  1996, and filed the amended returns with the  IRS  on
December  18,  1997;  and (4) at no time had  he  ever  knowingly
submitted  false  information to  the  SBA  with  regard  to  his
ownership of EAM.  Id.

     In  an  affidavit  sworn to December 22, 1997,  Mr.  Bobonik
stated that (1) until May 12, 1993, he owned 49% of EAM's shares;
(2)  on  May  12,  1993, he transferred all  of  his  shares  and
ownership  in EAM to John Braswell; and (3) he has not owned  any
EAM shares since May 12, 1993.  AR Ex. 2 at Attachment 2.

                      Petitioner's Position
                                
     EAM  requests  the  termination  be  withdrawn  and  it   be
permitted  to  continue  in  the 8(a)  program.   Amended  Appeal
Petition  at 3.  EAM argues that (1) Mr. Braswell's error  as  to
the  stock  transfer  date was inadvertent and  not  intended  to
mislead;  (2) Mr. Braswell had no motive to deceive the SBA  into
believing  the stock transfer was later rather than  sooner;  (3)
Mr.  Braswell  informed EAM's former CPA that he  owned  100%  of
EAM's  stock; and (4) EAM had acted to correct the erroneous  tax
returns.   Id.  at  2-3.   EAM  contends  the  SBA's  termination
decision  is arbitrary, capricious, and contrary to law.   Appeal
Petition at 3.

                      Respondent's Position
                                
     The  SBA  requests its decision to terminate EAM  be  upheld
because  it  was neither arbitrary, capricious, nor  contrary  to
law.  Answer at 1, 8.  It presents four arguments.

     First, the SBA's counsel argues:

     EAM  does not dispute that the information it submitted
     to  SBA  regarding  the ownership  of  EAM  was  false.
     Because EAM provided conflicting information concerning
     its  ownership,  portions of that information  are,  by
     definition, false.  EAM's only explanation is that  its
     principal, Braswell, did not know, and should not  have
     known,  that such information was false. .  .  .   This
     explanation lacks credibility.
     
Id. at 10.

     Second,   the  SBA  argues  that  EAM's  explanation,   that
Mr.  Braswell  did  not  and  should  not  have  known  that  his
statements were false, lacked credibility because (1)  they  were
given  under  the  penalty of perjury; (2) the proximity  of  his
signature,  on  the 1996 Ohio FT-1120-S, Notice of S  Corporation
Status,  to  the statement Mr. Bobonik was the 49% owner  of  EAM
calls into question the truthfulness of the 100% ownership claim;
(3)  Mr. Braswell certified each year, in EAM's 1993, 1994, 1995,
and  1996 certifications as an Ohio MBE, that Mr. Bobonik  was  a
49%   owner;   and   (4)  it  was  difficult  to   believe   that
Mr.  Braswell's one-year misstatement of when the stock  transfer
occurred,  in EAM's letter of explanation, resulted  from  simple
mistake.  Id. at 10-11.

     Third,  the  SBA argues the correction of the  tax  returns,
some unsigned, did not rectify EAM's previous submission of false
information to SBA.  Id. at 11.

     Fourth,  the SBA argues EAM's failure to provide a statement
from  EAM's  former CPA, who had allegedly entered the  incorrect
information  on EAM's tax returns, casts further doubt  on  EAM's
claims.  Id. at 12.

                           Discussion
                                
                   I.  Applicable Regulations.
                                
     On  November  26, 1997, the SBA notified EAM it intended  to
terminate EAM's 8(a) program participation.  AR Ex. 28.  On  July
10,  1998, the SBA notified EAM it terminated EAM from  the  8(a)
program.   AR  Ex.  3.   EAM timely appealed the  termination  on
August 14, 1998.  Appeal Petition.

     On  June  30, 1998, the SBA published a final rule  amending
parts  124 and 134 of title 13 (new regulations).7  The threshold
question  is whether this decision is governed by the substantive
provisions of the new regulations, which were effective July  30,
1998.  The "DATES" section of the new regulations provides:

     Effective Date:  This rule is effective on July 30, 1998.
     
          Compliance  Dates:   Subpart  A  applies  to   all
     applications for the 8(a) Business Development  program
     pending  as  of July 30, 1998 and all 8(a)  procurement
     requirements accepted by SBA on or after July 30, 1998.
     These  rules do not apply to any appeals pending before
     SBA's Office of Hearings and Appeals. . . .  Except for
     13  CFR 134.408(c), the procedural revisions to 13  CFR
     part 134 apply to all appeals served or filed on or
     after  June 30, 1998.  13 CFR 134.408(c) applies as  of
     the  publication  to all pending appeals  before  SBA's
     Office of Hearings and Appeals.
     
63 Fed. Reg. 35,726, 35,726-27 (1998) (emphasis added).

     Thus  (1) the new part 134 provisions apply to this  appeal;
(2)  the  new regulations establish compliance dates for applying
the new part 124, subpart A, to eligibility cases and procurement
cases; (3) they do not, however, establish a compliance date  for
applying part 124, subpart A, to termination appeals.

     The  SBA urges I should apply the former part 124, while EAM
argues I should apply the new part 124.

     The  SBA argues that (1) it was the SBA's "intent" that  the
new part 124 apply only to termination decisions made on or after
July  30,  19988 and (2) the former part 124 applies because  the
termination  letter was served before the July 30 effective  date
of  the  new  part 124.  SBA's Supplemental Response  to  Court's
Order  to  Brief  Issue,  October 15,  1998  (SBA's  Supplemental
Response).   Further, the SBA argues that a new substantive  rule
generally  has a retroactive effect only if the language  of  the
rule  requires that result, and that there is a presumption  that
the  rule  has a prospective effect.  SBA's Response  to  Court's
Order, filed December 8, 1998.

     EAM  argues  that  the new regulations  do  not  distinguish
between  procedural rules and substantive rules in its "effective
date"  language.  Thus, the new part 124 applies  to  any  appeal
filed  after July 30, 1998.  EAM's Response to SBA's Brief, filed
October 20, 1998, at 1.

     Neither  EAM nor the SBA cites any change to part 124  that
is  decisionally relevant.  In fact, neither party discusses any
change  to part 124, in either of its briefs in response  to  my
Orders of September 18, 1998, and December 8, 1998.
     
	I  find that none of the changes to part 124 is relevant to
the  decision of this case.  The decisionally relevant provision
of  the  former part 124-that is, the "false submissions" ground
for  termination-remains in effect with only  cosmetic  changes.
Compare  13  C.F.R. Section 124.209(a)(19) (1998) ("Knowing  
submission of false information to SBA . . . on behalf of a section  
8(a) business concern by its principals, officers, or agents, or by
its  employees,  where  the principal(s)  of  the  section  8(a)
concern  knows  or  should  have known  such  submission  to  be
false.") with 13 C.F.R. Section 124.303(a)(15) (1999)("Submission by
or on behalf of a Participant of false information to SBA . .  .
where  responsible officials of the 8(a) BD Participant knew  or
should have known the submission to be false.").

     Without   a   decisionally   significant   change   in   the
regulations, there is no justiciable issue to address.  It simply
does not matter, in this case, which regulation applies because
the  outcome is the same-knowing submission of a false  statement
to  the  SBA is good cause for termination from the 8(a) program.
The  cases  cited by the SBA do not contradict this:   Each  case
involved  a  decisionally  significant  change  in  the  law   or
regulation.   Landgraf  v. USI Film Prods.,  511  U.S.  244,  248
(1994)   (change   permitting  legal  relief  for   hostile-work-
environment  claim);  Bowen v. Georgetown University  Hosp.,  488
U.S.  204,  208  (1988) (retroactive Medicare cost limit  rules);
Bennett v. New Jersey, 470 U.S. 632, 634 (1985) (change governing
use of funds); Gersman v. Group Health Ass'n, Inc., 975 F.2d 886,
888  (D.C.  Cir. 1992) (change applying statute to conduct  after
contract formation), cert. denied, 511 U.S. 1068 (1994).  Accord,
Lindh  v. Murphy, 521 U.S. 320 (1997) (change in law not  applied
in pending case); Bradley v. School Bd. of Richmond, 416 U.S. 696
(1974) (change in law applied in pending case); Thorpe v. Housing
Authority  of Durham, 393 U.S. 268 (1969)  (change in regulations
applied in pending case); United States v. Schooner Peggy, 5 U.S.
(1 Cranch) 103, (1801) (change in law during appeal applied).

     The  SBA  (1) served its letter of intent to terminate,  (2)
considered  EAM's response, and (3) made and served its  decision
that applied the former part 124 in terminating EAM from the 8(a)
program-all prior to the July 30, 1998, effective date of the new
regulations.  Therefore, because the changes to part 124 are  not
relevant to the decision in this case and neither party would  be
prejudiced  by my refusal to apply the new part 124,  the  former
part 124 will be applied.9

                    II.  Standard of Review.
                                
      The  determination  of the SBA must be sustained  unless  a
review of the written administrative record demonstrates that the
SBA's  conclusion that Mr. Braswell, on behalf  of  EAM,  falsely
stated  he is the 100% owner of EAM is arbitrary, capricious,  or
contrary to law.  13 C.F.R. Section 134.406(b) (1999).

      My  review of the administrative record is narrow and  does
not  permit me to substitute my own judgment for that of the SBA.
I must examine whether the SBA considered all the facts presented
as  well  as  the laws and regulations that guide  the  decision-
making  process.  Then, I must determine whether the SBA  made  a
clear error of judgment in its decision before I can find the SBA
decision is arbitrary, capricious, or contrary to law.  See Motor
Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983).

      A clear error of judgment can be found if the SBA (1) fails
to  properly  apply the law and regulations to the facts  of  the
case;  (2) fails to consider an important aspect of the  problem;
(3)  offers  an  explanation  for  its  determination  that  runs
contrary   to  the  evidence;  or  (4)  provides  an  implausible
explanation that is more than a difference between my  views  and
those of the SBA.  In sum, the SBA must articulate a satisfactory
explanation  for  its  action, including  a  rational  connection
between the facts found and its determination.  See id.

                     III. Ownership of EAM.
                                
     The  SBA  concluded it had good cause to terminate EAM  from
the 8(a) program.  The SBA termination letter alleged a violation
of 13 C.F.R. Section 124.209(a)(19) (1997).  AR Ex. 3. The regulation
provides  that the SBA may terminate "[p]articipation of  a  8(a)
business concern" before "the expiration of the concern's Program
Term  for good cause."  13 C.F.R. Section 124.209(a) (1998).  Good 
cause includes "[k]nowing submission of false information .  .  . on
behalf  of  a  section 8(a) business concern by  its  principals,
officers,  or agents, or by its employees, where the principal(s)
of  the  section  8(a) concern knows or should  have  known  such
submission to be false."  13 C.F.R. Section 124.209(a)(19) (1998).

     The  SBA  concluded  that Mr. Braswell  falsely  represented
himself  as the 100% owner of EAM and contends that Mr.  Braswell
owns  only 51% of EAM's shares, while Mr. Bobonik still owns  the
other 49%.

     The  central factual determination to be made by the SBA was
whether  Mr. Bobonik still owned EAM shares.  EAM represented  to
the  SBA,  before EAM's admission into the 8(a)  program  and  in
subsequent annual updates to the SBA, that Mr. Braswell  was  the
100%  owner  of EAM.  Implicit in those representations  is  that
Mr.  Bobonik  divested  himself of his EAM  shares  before  EAM's
admission into the 8(a) program and had not owned any EAM  shares
since.   If Mr. Bobonik owned 49%, EAM would have been ineligible
for  admission because, as a nondisadvantaged owner  of  an  8(a)
applicant, he could not own more than 10% of another firm in  the
same  or similar line of business as the applicant.10  13  C.F.R.
Section 124.104(c)(2)(1998).  The purpose of this provision is to
preclude individuals not socially and economically disadvantaged,
such  as  Mr. Bobonik, from asserting control over an 8(a)  firm.
Therefore,  Mr.  Braswell's statements concerning  his  ownership
were material representations that affected whether the SBA would
admit EAM into the 8(a) program.

     The evidence in the record is not generally in dispute.  Its
significance   and  truthfulness  are.   To  accept   the   SBA's
conclusions that Mr. Bobonik still owned shares of EAM, the Share
Exchange   Agreement,   Mr.   Bobonik's   cancelled   EAM   stock
certificate, Mr. Braswell's certificate for 49 additional shares,
and  EAM's corporate minutes-presented to the SBA to secure EAM's
admission into the 8(a) program-all must have falsely represented
EAM's  ownership.   Also,  EAM's  1996  and  1997  updates,   the
affidavits  of  Mr.  Bobonik and Mr. Braswell,  the  amended  tax
returns prepared by EAM's current CPA and signed by Mr. Braswell,
and  the  amended personal tax returns of the Braswells  and  the
Boboniks all must have falsely stated that Mr. Bobonik still  has
no ownership interest in EAM.

      The SBA's resolution of this conflict must be evaluated  to
determine   whether  the  SBA's  conclusion  that  the   evidence
establishes Mr. Braswell, on behalf of EAM, made false statements
to  the SBA because Mr. Bobonik still owned a 49% interest in EAM
is  in  accordance with the State Farm standard.  See supra  Part
II; Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State
Farm  Mut.  Auto.  Ins.  Co.,  463 U.S.  29,  43  (1983).   EAM's
corporate  books  and  records,  including  the  minutes  of  its
shareholders  and directors meetings and its stock  certificates,
are  central to a determination of who owned EAM and whether  the
State Farm standard is met.

              A.   Evidence of EAM's Stock Records.
                                
     A  shareholder of an Ohio corporation is a person whose name
appears on the books of the corporation as the owner of shares of
such corporation.  Matter of Envt'l Affairs and Management, Inc.,
SBA  No. MSB-621, at 10 (1999) (citing Ohio law).  One whose name
appears  on  the  corporate books and records is the  presumptive
owner of the shares.  Id. (citing Finn v. Brown, 142 U.S. 56,  67
(1891)).

     A  corporation's books and records are a fundamental  source
of   evidence  identifying  shareholders.   Envt'l  Affairs   and
Management,   Inc.,  MSB-621  at  10.   Though  incomplete,   the
corporate records included in the administrative record before me
lead to only one conclusion-that Mr. Braswell had been EAM's sole
shareholder since May 12, 1993, when Mr. Bobonik divested himself
of his 49 shares pursuant to the Share Exchange Agreement.

     Stock  certificate number 1, dated October 27, 1988, for  49
shares  was  issued  to Mr. Bobonik.  The  reverse  side  of  the
certificate  number 1 was marked "Canceled."   Stock  certificate
number  3,  dated  May  12, 1993, for 49  shares  was  issued  to
Mr.  Braswell.  The stub attached to certificate number 3  showed
it  was  issued to Mr. Braswell in return foranother certificate,
also  for  49 shares, presumably certificate number 1.11   Before
EAM's  admission  into  the 8(a) program, the  SBA  viewed  these
documents  as  legally sufficient to establish that  Mr.  Bobonik
divested himself of his EAM shares and Mr. Braswell was the  sole
shareholder of EAM.  I agree with that conclusion.  No  corporate
documents  in the administrative record undermine that conclusion
or substantiate the SBA's theory either that a transfer of shares
back  to  Mr. Bobonik occurred or that the transfer did not  take
place.

     Possession  of the stock certificate evidences the  holder's
ownership  of the shares and creates a rebuttable presumption  of
ownership.   Id.  at 12.  Likewise, a transfer  of  a  stock  cer
tificate by the holder divests him of his ownership interest.   A
share  is  transferred to a purchaser when the purchaser acquires
possession  of  the  stock certificate.  Id. (citing  Ohio  law).
Upon receiving a stock certificate, a purchaser acquires whatever
rights  in the stock certificate the transferor had.  Id. (citing
Ohio law).  Both the transferor, Mr. Bobonik, and the transferee,
Mr. Braswell, state under oath that Mr. Bobonik no longer owned
shares of EAM.  Under these circumstances, Mr. Bobonik could  not
establish an ownership interest in EAM because he could not  meet
the  presumption  of  ownership created by  EAM's  possession  of
Mr.  Bobonik's  cancelled  stock  certificate,  as  well  as  the
evidence  of  the  Share Exchange Agreement  and  his  affidavit.
Absent a successful claim of ownership, Mr. Bobonik could not (1)
exercise the control of EAM prohibited by 13 C.F.R. Sections 
124.104(c)and 124.104(d)(1998) or(2)claim ownership of EAM, because 
the transfer of his shares complied with Ohio's statutory transfer
requirements  and  he no longer possessed the stock  certificate.
Therefore,  the SBA's conclusion that Mr. Bobonik  was  still  an
owner lacks a sound basis in fact and law.

     Furthermore, the record contains no evidence the SBA weighed
the  evidence  of the stock certificates in determining  EAM  had
falsely  represented Mr. Braswell as the 100% owner of EAM.   But
see   AR  Ex.  36  at  4  (noting  the  existence  of  the  stock
certificates  in  the  file).   The  SBA's  termination   letter,
however,  noted parenthetically, after acknowledging EAM provided
the  SBA a copy of the cancelled stock certificate for 49  shares
originally  issued to Mr. Bobonik, that "[w]hile the  certificate
is  marked `CANCELED', the surrender portion on the rear side  of
the  certificate is signed but not completed."  AR Ex.  3  at  2.
Presumably   the  SBA  was  expressing  skepticism  whether   the
surrender  was effected.  The SBA, however, did not consider  the
effect  of the Share Exchange Agreement on the transfer.  See  AR
Ex. 81.  Ohio law permits the transfer of a share of stock on  an
instrument other than the stock certificate.  Ohio Rev. Code Ann.
1308.23 (Anderson 1998).  The Share Exchange Agreement is  such
an  instrument  and, when considered with certificate  number  1,
certificate  number  3  (with  the  stub),  the  presumptions  of
ownership, and the affidavits, compels the inescapable conclusion
that  Mr.  Bobonik divested himself of his EAM shares.   The  SBA
made  a  clear  error  of judgment in failing  to  consider  this
important aspect of the problem.

                     B.  Corporate Minutes.
                                
     Although  the  administrative record includes  no  books  or
records of account or detailed records of shareholders and  their
respective  holdings, it does include some of  EAM's  minutes  of
proceedings of shareholders and directors meetings.  See  AR  Ex.
58 at 87-88, 97-98.

     The  May 12, 1993, minutes stated that (l) Mr. Braswell  was
appointed  president and treasurer of EAM and (2)  Mr.  Braswell,
signing  the minutes as the sole shareholder of EAM,  became  its
sole  director.   Id. at 97-98.  Taken together  with  the  stock
certificates, these minutes corroborated that, on or  before  May
12,  1993,  Mr. Braswell became EAM's sole shareholder  and  sole
director and Mr. Bobonik was no longer an EAM shareholder.

     The  record contains no indication the SBA, in reaching  its
conclusion, considered the evidence of the corporate minutes  and
weighed it with the other evidence in determining whether EAM had
falsely represented Mr. Braswell as the 100% owner of EAM.

                         C.  Affidavits.
                                
     Affidavits  of  knowledgeable persons may  be  probative  in
determining the real fact of ownership.  After the SBA  commenced
these  termination proceedings, EAM presented the  affidavits  of
Mr. Braswell and Mr. Bobonik to establish EAM's ownership and  to
explain  conflicting  documents in the  record.   Mr.  Braswell's
affidavit stated he became EAM's 100% owner on or about  May  12,
1993,  he had since continued as EAM's sole shareholder,  and  he
had  never knowingly submitted false information to the SBA  with
regard  to  the ownership of EAM.  His affidavit also  attributed
mistakes in various documents that contradict his claim  of  100%
ownership  of EAM to errors by EAM's former CPA.  AR  Ex.  2,  at
Attachment  1. Mr. Bobonik's affidavit stated that,  on  May  12,
1993,  he  transferred  his  49% ownership  interest  in  EAM  to
Mr. Braswell and has not owned any EAM shares since that date. AR
Ex. 2 at Attachment 2.

     The  SBA's termination letter recognized EAM submitted these
affidavits  for  its consideration, but the SBA merely  concluded
EAM's response submissions were not credible.  AR Ex. 3.  The SBA
did  not  explain  why  it  concluded  the  affidavits  were  not
credible.    The  affidavits  were  consistent  with  the   stock
certificates,  corporate minutes, Share Exchange  Agreement,  and
amended tax returns.  This evidence demands more than the summary
conclusion that they are not credible.

                        D.  Tax Returns.
                                
     Finally,  documents, including tax returns, can be  relevant
evidence  of ownership, but are not necessarily pivotal  evidence
establishing ownership of corporate shares.  Envt'l  Affairs  and
Management, MSB-621 at 14-15.

     The  SBA  correctly stated that EAM's original  tax  returns
listed  Mr.  Bobonik as a 49% owner and that  EAM's  amended  tax
returns showed Mr. Bobonik had no interest in EAM.  The SBA  then
concluded,  because  they were signed by  Mr.  Braswell,  stating
under  penalty  of  perjury that they  were  true,  correct,  and
complete,  those  original tax returns  establish  Mr.  Bobonik's
ownership  interest in EAM.  Tax returns do not establish  facts.
Estate  of Ruth E. DuBois v. Comm'r, 67 T.C.M. (CCH) 2951  (1994)
(citing Roberts v. Comm'r, 62 T.C. 834, 837 (1974) (holding  that
"merely  signing a tax return under penalty of perjury  does  not
establish  the  facts  contained  therein")  (emphasis   added)).
Accord,  Seaboard Comm'l Corp. and Subsidiary Cos. v. Comm'r,  28
T.C.  1034,  1051  (1957) (noting that a tax  return  "cannot  be
regarded  as  more  than  a  statement of  petitioner's  original
claim").

     Consistent  with the amendment of EAM's income tax  returns,
the  Boboniks  and the Braswells then amended their  federal  and
state  personal income tax returns.  This was necessary  because,
when EAM amended its federal and state returns, it reallocated to
the  Braswells  all  of its income and losses  allocated  in  the
original  tax returns to the Boboniks.  Amending a tax return  is
an  authorized  means  to  ensure tax obligations  are  correctly
reported to federal and state taxing authorities.

     Therefore,  the  original tax returns,  although  admissions
against EAM's interest, did not establish Mr. Bobonik still owned
an  interest  in EAM.  They are only some evidence  of  corporate
ownership  that  reasonably should be viewed as  less  persuasive
than  the  stock  certificates themselves, stub,  Share  Exchange
Agreement,   corporate  minutes,  and  affidavits  of  ownership.
Because  the  original tax returns on which the  SBA  so  heavily
relied to reach its decision were later amended, the weight to be
accorded  those returns is further diminished.  The  amended  tax
returns,  which  should  be  accorded  greater  weight  than  the
original  tax  returns because they were filed  while  under  the
scrutiny of the SBA, showed Mr. Braswell as the 100% owner of EAM
and  supported EAM's position that its statements were not false.
The  amendments  logically also supported  EAM's  claims  it  was
correcting a CPA's mistake.  Further, the SBA failed to  compare,
in  a  meaningful  manner,  the  significance  of  the  corporate
evidence with that of EAM's original tax returns.

                    III.  SBA's Concessions.
                                
     The  SBA's  reasoning itself supported the  conclusion  that
suspicion alone was the basis for its decision to terminate  EAM.
The SBA asserted EAM knowingly submitted false information to the
SBA  "in  its  1996 and 1997 annual updates and possibly  in  its
application  for 8(a) certification."  AR Ex. 28 at  2  (emphasis
added).   The  annual  updates  and  the  8(a)  application  both
reflected  Mr. Braswell was the 100% owner of EAM.  If the  SBA's
conclusion  is  that  the 8(a) application  was  only  "possibly"
false,  then  the SBA was merely speculating that the application
is  false.  This speculation does not support a reasonable belief
that  EAM  submitted  false statements to the  SBA  in  its  8(a)
application.

     In  its  Answer, pursuant to 13 C.F.R. Section 134.206 (1999),  
the SBA addresses the factual allegations in EAM's Amended Appeal
Petition.  The "SBA denies knowledge or information sufficient to
determine  the  truth of EAM's assertions as to the  present  and
previous  ownership  of  EAM."  Answer  at  7.   This  denial  of
knowledge  or information is contrary to the basis for the  SBA's
decision  to  terminate  EAM from the 8(a)  program.   The  SBA's
decision  was  founded on the untruthfulness of EAM's  claims  of
ownership.   The  SBA's  uncertainty and  lack  of  knowledge  or
information  to determine the truth of EAM's claims of  ownership
fall  short  of  the requirement that the SBA have  a  reasonable
belief  that  false  statements concerning EAM's  ownership  were
submitted to the SBA.

               IV.  SBA's Analysis and Conclusion.
                                
     In  its letter of intent to terminate, the SBA attempted  to
explain its rationale for concluding that Mr. Braswell made false
statements  when he claimed he was the sole owner of  EAM.   That
explanation fell short of being reasonable in many respects.
     
                        A.  Tax Returns.
     
     The SBA concluded the amended personal federal and state tax
returns  of  both  the Boboniks and the Braswells  were  unsigned
copies of the returns, and thus not credible.  See AR Ex. 3 at 2,
3.   Despite  this  conclusion, the SBA also concluded  that  the
returns  were filed.  See 8(a) Termination Review of Response  to
45  Day  Letter, AR Ex. 9 at 3 ("It was only after SBA's  request
for  personal  tax returns . . . that [EAM's] principals  [filed]
their  amended tax return.").  In addition, the SBA  acknowledged
that  EAM's amended corporate tax returns were signed  and  filed
with the IRS.  Answer at 6, 7.  The SBA concluded in its analysis
that  the personal returns were filed.  AR Ex. 9 at 3.   Yet,  in
its  termination letter, the SBA suggested they were not credible
because they were unsigned, AR Ex. 3 at 2, 3, and presumably  not
filed.
     
     The  SBA did not state why the lack of signatures makes  the
returns less credible.  Possibly, the SBA believed, because  they
are  not signed, they were also not filed.  Such a conclusion  is
not  supported  by the evidence.  The SBA, though certifying  the
"full"  administrative record to be a "true and correct  copy  of
the  non-privileged  documents in the Agency Record,"  failed  to
include  in the administrative record evidence favorable to  EAM,
proving the Boboniks filed those returns.  I take judicial notice
of  the  Docket File in the suspension case.  Envt'l Affairs  and
Management, Inc., Docket No. MSBS-97-12-23-31, Motion to File Sup
plemental    Evidence   Instanter,   Attachments   1-5.     These
attachments, which include letters from the IRS acknowledging  it
changed  the account of the Boboniks for tax years 1994 and  1995
and  Ohio tax payment cards for the years 1994-96, match the  tax
owed on the unsigned tax returns the SBA questions.  I find those
returns  were filed and the adverse conclusions drawn by the  SBA
are not supported by evidence.
     
     The  SBA  concluded, when Mr. Braswell signed EAM's original
1996  tax return under penalty of perjury, that he owned 51%  and
Mr.  Bobonik owned 49% of EAM.  It also concluded the information
in  the return should be believed over the other information  EAM
presented concerning Mr. Braswell's ownership.  These conclusions
ignored  the  fact  that  all  of the other  evidence  supporting
Mr.  Braswell's claim of 100% ownership, including EAM's  amended
tax  return,  were also subject to some penalty if  the  contents
were false.  The 8(a) application itself, including the corporate
documents  submitted with the application,  was  subject  to  the
false  statement provisions of the Small Business Act.  15 U.S.C.
645(a).   The  affidavits of Mr. Bobonik and Mr. Braswell  were
subject to the false statement provisions of Ohio law.  Ohio Rev.
Code   Ann.   2921.13(A)(6)  (Anderson  1998).   False  corporate
documents  were subject to a civil penalty under Ohio law.   Ohio
Rev.  Code Ann.  1701.93(A), (B) (Anderson 1998).

     Thus,  the  fundamental  flaw  in  the  SBA's  reasoning-the
original tax returns were subject to penalty if false; thus, they
must  have  been  true-is  that the contrary  evidence  also  was
subject  to penalty if it were false; thus, the contrary evidence
must also have been true.
     
     The  SBA's  rationale  concerning the  amended  tax  returns
illustrates  its  confused reasoning process.  Referring  to  the
amendment,  the  SBA stated, "that the tax returns  were  amended
after SBA discovered the discrepancy does not mitigate [sic]  the
charge that [EAM] deliberately provided false information" to the
SBA  in its application and annual updates.  AR Ex. 3 at 3.  Then
the  SBA  concluded,  "[c]orrection of a falsehood  after  it  is
discovered does not make the falsehood any less false."  Id.  The
SBA  appears  confused about what it believed was  false:   EAM's
application and updates; or EAM's original tax returns.  The  SBA
concluded,  not  that  EAM corrected a  falsehood,  but  that  it
maintained a falsehood throughout its participation in  the  8(a)
program.  In reaching this conclusion, the SBA assumed, not  that
the  original tax returns were false, but that they alone,  among
all  the evidence in the record, were true.  Though the confusion
arguably resulted from drafting error, the SBA's counsel makes no
such  proffer  on  appeal; rather, she adopts  the  SBA's  flawed
reasoning.   Answer at 11.  This reasoning, even if a mere  error
in  drafting,  when combined with the other faulty  analysis  and
factual  assumptions,  illustrates the arbitrary  and  capricious
nature of the SBA's decision to terminate EAM.

     The SBA also attached further importance to the signature of
EAM's former CPA on EAM's original tax return.  AR at Ex. 9 at 3.
Yet  it  ignored that EAM's current CPA signed EAM's amended  tax
return.  The SBA did not explain why the signature of the  former
CPA should carry greater weight than that of EAM's current CPA.
     
     For  the first time in the termination letter, the SBA  took
EAM  to task for not obtaining a letter from the former CPA  who,
EAM  claims, prepared the tax returns and other documents showing
Mr.  Bobonik  was a 49% owner of EAM.  The SBA stated  the  "most
credible  evidence EAM could have provided is noticeable  in  its
absence," a "statement by the accountant correcting this  mistake
would  certainly  be  in  order," and "[n]o  such  statement  was
provided."   AR Ex. 3 at 3.  The SBA never requested EAM  provide
such  a  statement.  See, for example, the letter  of  intent  to
terminate,  AR  Ex.  28.  EAM argues in its Appeal  Petition,  in
response to the SBA's belated precatory request, that its  former
CPA  is  now deceased.  Appeal Petition at 2.  The SBA  does  not
object  to  this argument but continues to argue that failure  to
present  the  former CPA's statement undercuts EAM's credibility.
Answer at 12.
     
     Generally, my decision must be decided solely on a review of
the written administrative record. 13 C.F.R. Section  134.406(a)
(1999).  Evidence of the death of EAM's former CPA is outside the
record.   The SBA, however, assumed that EAM could have presented
evidence  from its former CPA, to explain why a mistake was  made
in  these  documents.  It then based its conclusion, in part,  on
the  absence of such evidence.  It is problematic whether EAM can
be denied the opportunity to address this point without violating
its  due  process rights.  I could remand the case  to  the  SBA,
directing  it to afford EAM the opportunity to present,  for  the
SBA's  consideration, evidence of the death of its former CPA  to
explain  the  absence of his statement.  Merely establishing  the
CPA's death, however, would not assist in deciding the extent  of
his  involvement in the mistake.  Further, to do so would  unduly
delay   a   decision  in  this  already  protracted   litigation.
Therefore, in the interest of judicial economy, I will  not  draw
the  negative inference the SBA suggested from the absence of the
former CPA's statement.
     
               B.  Notice of S Corporation Status.
     
     EAM  completed  an Ohio FT-1120-S, Notice of  S  Corporation
Status.   AR  Ex. 65.  Prepared by EAM's former CPA  on  May  14,
1996, and signed by Mr. Braswell on May 16, 1996, the form stated
Mr.  Braswell owned 51% and Mr. Bobonik owned 49%  of  EAM.   Id.
The  SBA  attached great significance to this document.   In  its
termination letter, the SBA reasoned it would have been difficult
for  Mr.  Braswell to sign the form without seeing Mr.  Bobonik's
name  listed as the 49% owner of EAM.  AR Ex. 3 at 3.  Thus,  the
SBA  argued,  Mr.  Braswell's signature on this  document  belies
EAM's claim that the statement resulted from an error.  Answer at
10, 11.

     The  SBA first addressed this discrepancy in its termination
letter.   Thus, EAM was again denied the opportunity  to  present
evidence  to rebut the SBA's conclusion.  However, EAM's  defense
to  the  SBA's  claim,  in general, is that  any  inconsistencies
concerning  ownership resulted from mistakes made by  its  former
CPA  and not recognized by Mr. Braswell.  The SBA did not address
EAM's   position  adequately.   EAM's  position  is,   not   that
Mr.  Braswell did not know what was on the form but,  because  of
his  accountant's actions, he mistakenly believed that the former
CPA properly completed the form.  Accordingly, the SBA's analysis
of  the  Ohio FT-1120-S form failed to address the crux of  EAM's
defense to the termination action.
     
                C.  EAM's Letter of Explanation.
     
     In a letter dated November 25, 1997, responding to the SBA's
questions  concerning EAM's ownership, Mr. Braswell  advised  the
SBA  that  Mr. Bobonik relinquished his EAM shares in June  1994.
The  letter  explained further that EAM's tax  returns  contained
"erroneous information."  AR Ex. 32.  Seizing on that discrepancy
with  the  Share  Exchange Agreement's May 1993  date  and  stock
certificates  submitted  to the SBA  in  1993,  the  SBA  in  its
termination letter reasoned:
     
     Although  your  misstatement that  the  stock  transfer
     occurred  in  June, 1994, rather than May, 1993,  could
     have  been a simple mistake, [the SBA finds] that  this
     alleged  mistake is further evidence that  Mr.  Bobonik
     did  not relinquish his stock in May, 1993.  Given your
     management  and  control of EAM,  it  is  difficult  to
     believe that your knowledge of when this event occurred
     could  be off by over a year, if in fact the May,  1993
     transfer had actually occurred.
     
AR Ex. 3 at 3.

     In  response,  EAM  argues Mr. Braswell  had  no  motive  to
deceive the SBA into believing that the stock transfer was  later
rather  than  sooner.   Rather, if the  share  transfer  had  not
actually  occurred, Mr. Braswell would have had every  reason  to
keep  his  story  consistent to avoid  drawing  SBA's  attention.
Appeal  Petition at 2.  EAM claims it confused the transfer  date
with the date EAM was admitted into the 8(a) program.  Id.
     
     There is no evidence in the record, nor does the SBA assert,
that  any  ownership transfer took place in June 1994.  EAM  only
claims  the  letter contained a mistake and points to  a  logical
explanation-that it confused these two dates.  The SBA relied  on
this discrepancy ("it is difficult to believe that your knowledge
of  when  this event occurred could be off by over  a  year")  to
reach  the  conclusion that no transfer occurred.  That  reliance
was  misplaced.  That the dates varied by more than a year proves
nothing but a discrepancy in EAM's explanation.  Without the  SBA
showing anything more, its rationale was flawed.  EAM's erroneous
explanation   was  just  that-an  explanation.   The  explanation
arguably  raises  a  question of credibility,  but  it  does  not
support the conclusion that confusing the two dates established a
falsehood.
     
                      D.  SBA's Conclusion.
     
     The  SBA's  analysis  and conclusion were  unreasonable  and
contrary  to  the  weight of the evidence  in  the  record.   Its
rationale-Mr. Braswell knowingly signed the original tax  returns
and state filings; thus, the information was true-ignores that he
also  knowingly  signed  the  corporate  documents,  amended  tax
returns,  affidavits, and other documents indicating  he  is  the
100% owner of EAM.  Accordingly, using the SBA's reasoning, these
documents are also true.
     
     The  SBA did not explain why the stock certificates are  not
what  they  purport  to  be.   The  SBA  did  not  consider   the
significance  of  the  corporate books and  records.   It  merely
speculates  the  original  tax  returns  and  state  filings  are
sufficient  proof  that the stock certificates falsely  represent
ownership.   Although  inconsistent actions  contradicting  EAM's
corporate books and records may cause one to question those books
and  records,  something  more is required  to  explain  why  the
corporate books and records do not establish ownership.  By  fail
ing  to analyze the significance of the stock certificates, Share
Exchange Agreement, affidavits, and amended tax returns in  their
own  right,  the  SBA  failed to offer  the  rational  connection
between  facts  and judgment required to pass  muster  under  the
arbitrary and capricious test.  The SBA merely made a credibility
determination  based  on  inconsistent  information.    That   is
insufficient.

      Therefore, after a review of the administrative  record,  I
find the SBA's conclusion Mr. Braswell, on behalf of EAM, falsely
stated he is the 100% owner of EAM is not fully supported in  the
record by the evidence and is unreasonable.  I find the SBA  made
a  clear error of judgment in concluding EAM should be terminated
from  the  8(a)  program  because it submitted  false  statements
concerning  its  ownership.  Accordingly, the SBA's  decision  is
arbitrary, capricious, and contrary to law.

                           Conclusion
                                
       Respondent   Small   Business  Administration's   decision
terminating  Petitioner  Environmental Affairs  Management,  Inc.
from  the 8(a) program is ARBITRARY, CAPRICIOUS, AND CONTRARY  TO
LAW.  See 15 U.S.C. Section 637(a)(9)(C); 13 C.F.R. Section 134.406(b)
(1999).

     Subject to 13 C.F.R. Section 134.408(c) (1999), this is the final
decision  of the Small Business Administration and is binding  on
the  parties.   15  U.S.C. Section 637(a)(9)(D). 13  C.F.R. Section  
134.408(a) (1999).

                                 RICHARD S. ARKOW
                                 Administrative Law Judge

_______________________________
     1  Small Business Act of 1958,  8(a), as amended, 15  U.S.C.
Section 637(a); 13 C.F.R. part 124 (1999).  The purpose of section 8(a)
is  to  "promote  the  business  development  of  small  business
concerns  owned  and  controlled  by  socially  and  economically
disadvantaged individuals so that such concerns can compete on an
equal  basis  in  the  American economy  .  .  .  ."   15  U.S.C.
Section 631(f)(2)(A).
     2  This provision was not changed in 1998.
     3  See 13  C.F.R. Section 124.104(c)(2)(1998) (prohibiting
nondisadvantaged owners of an applicant concern from owning  more
than 10% of a concern in the same or similar line of business).
     4  Accompanying  the  amended  1994  Ohio  return  was  the
Braswells'  unsigned amended 1994 federal return, dated  February
3,  1998,  prepared  by  EAM's  current  CPA,  which  stated  the
amendment  was  "made  to  properly reflect  100%  ownership  and
profit/loss allocation to John Braswell," AR Ex. 11 at 12-13.
     5  Accompanying the amended 1995 Ohio return was Page  2  of
the  Braswells'  amended 1995 federal return,  which  stated  the
amendment  was  "made  to  properly reflect  100%  ownership  and
profit/loss allocation to John Braswell," id. at 11.
     6  Accompanying the amended 1996 Ohio return was Page  1  of
the  Braswells'  unsigned  amended  1996  federal  return,  dated
February 3, 1998, prepared by EAM's current CPA, which stated the
amendment resulted in the Braswells' being entitled to a  $187.00
refund, id. at 17.
     7   Small   Business   Size   Regulations;   8(a)   Business
Development/Small  Disadvantaged Business Status  Determinations;
Rules  of Procedure Governing Cases Before the Office of Hearings
and Appeals, 63 Fed. Reg. 35,726 (1998).
     8  Counsel failed to cite any authority for her assertion of
the  SBA's intent.  In response to an order to provide authority,
counsel  presented the declaration of the SBA's Associate General
Counsel  for General Law, who stated that the Office  of  General
Law was responsible for drafting these rules and the "SBA did not
intend that the substantive revisions apply to termination  cases
in  which  the termination decision was made prior  to  July  30,
1998."   SBA's Supplemental Response Ex. A.  This declaration  is
not  competent  legal  authority to support  counsel's  assertion
regarding the SBA's intent.  Thus, I find counsel for the SBA was
unable  to  support her argument with competent legal  authority,
such  as  commentary  from the Federal  Register,  that  the  SBA
intended the former substantive rules apply.
     9 Cf. Matter of D'Wiley's Svcs., Inc., SBA No. MSB-537, at 5-
6  (1996)  (holding SBA's failure to apply new  rules,  effective
after  SBA started termination proceedings but before SBA decided
to  terminate petitioner from the 8(a) program, denied petitioner
the benefit of newly created rights).
     10  Although  the  record contains no direct  evidence  that
Mr.  Bobonik owns 10% or more of ESM, Inc., which is in the  same
or  similar  line of business as EAM, the parties  have  conceded
that fact and it is not in issue.  This restriction is not in the
new regulations.  This omission is not decisionally significant.
     11 Stock certificate number 2 is absent from the record.   I
conclude  that  it  was issued to Mr. Braswell  because  EAM  was
admitted  into the 8(a) program based on his majority  ownership.
The  SBA does not explain why the certificate is missing from the
record, which was certified as complete.

                                               Posted:  May, 1999