Bernard Crofton, whose tenure as housing director in Britain's poorest borough was plagued by controversy, was found to have discriminated four times against a colleague.
During his seven years at Hackney Council in east London, Mr Crofton devoted his energies to rooting out housing benefit fraud but he caused a major split when he claimed Sam Yeboah, the council's personnel director, was failing to tackle recruitment irregularities among West Africans.
Mr Crofton was dismissed and later reinstated but an internal inquiry in 1996 by Ian Macdonald, QC accused him of being a liar and gaining reinstatement to his pounds 70,000-a-year job by deception. The inquiry found Mr Yeboah had been "gravely wronged and shabbily treated".
In spite of that, Mr Crofton continued to be backed by some newspapers, was portrayed as a victim in a number of BBC documentaries and earned generous support from the cross-party Commons Social Services Committee, whose chairman, Frank Field, said it was "vital" Mr Crofton remain.
Mr Yeboah took Mr Crofton and Hackney Council to an industrial tribunal after leaving his job because of the recruitment allegations. Yesterday, after 103 days, the tribunal found unanimously that both had racially discriminated against him on several counts.
The full findings and the damages to be awarded will follow. The council refused to comment until then but it is understood there is relief that a further claim that the chief executive, Tony Elliston, discriminated against Mr Yeboah was rejected.
"I feel completely vindicated," Mr Yeboah said last night. "I was always confident that the tribunal would deliver justice. It has been a nightmare, a most harrowing experience. I believe my career has been completely ruined ... The chances of another employer employing me are very slim."
In the Macdonald report, Mr Crofton was accused of fostering an atmosphere in which black employees were subjected to a witch-hunt and where, on one occasion, the names of 600 employees were secretly passed to the Immigration Department for checking.
The report said: "Certain individuals exhibited the corporate view that 'too many bloody Africans' were being appointed to jobs in Housing. 'African' became synonymous with fraud ... which in turn fed the myth of a great West African conspiracy.
"I have ... come to the conclusion that the allegations are without foundation."
Mr Crofton failed to return calls yesterday.