Ted Loza, 45, is accused of accepting two bribes to promote taxicab legislation. He was arrested at his home at about 7 a.m.
Graham said Loza told him about the FBI investigation recently. The councilman denied any personal wrongdoing.
"I have had no engagement whatsoever in any illegal or unethical behaviors," he said.
FBI agents went to the Wilson Building to search Loza's office Thursday.
"When I arrived at the office I went to Mr. Loza's office and I said to the FBI agents, 'Is there anything I can do to help?'" Graham said. "'Please assume our complete cooperation.'"
Graham chairs the council's Committee on Public Works and Transportation, which has oversight and authority over the D.C. Taxicab Commission. The council legislated a moratorium on new multi-car cab company licenses in July 2008, making existing licenses more valuable.
According to the indictment, someone with financial interests in the taxi industry bribed Loza with cash, the use of vehicles, trips and more in exchange for Loza's promotion of taxi legislation favoring his financial interests, including the moratorium on new company licenses and Graham's legislation to create a medallion system, which is currently under consideration.
The first count accuses Loza of accepting a "Father's Day gift" of $1,000 in cash on June 19 during a conversation about the possibility of getting the "legislation with the hybrid cars" introduced quickly, according to the indictment, which was handed up Sept. 17 and unsealed Thursday.
The second count stems from $500 he allegedly accepted on July 10 after producing a copy of the legislation for the unnamed person in the taxi industry.
Authorities report they have wire taps and video of Loza accepting cash.
In both instances, the person in the taxi industry indicated the cash was from himself and a second person with a financial interest in the industry. Their identities and whether or not they were working with the FBI were not disclosed.
The council is scheduled to consider Graham's medallion bill on Oct. 1. Some city officials believe a medallion or certificate system would limit the number of cab drivers and encourage eco-friendly and wheelchair-friendly taxis. Low-emissions taxis on record would receive free Class A medallions. Wheelchair-accessible taxis on record would get free Class B medallions. All other owners of single vehicles currently licensed to operate as cabs would have the opportunity to buy Class C medallions. The mayor would then offer for sale a number of medallions of each class, but the total number of medallions issued would not exceed the number of owners of taxis on record as of April 1. Additional Class A and Class B medallions would be allowed, but Class C medallions would be phased out over 11 years.
As many as 1,000 of the city's 8,000 cab drivers participated in a strike Tuesday to protest the legislation. They're upset about the prospect of paying an as-yet-unspecified amount for Class C medallions as well as yearly certificate fees.
Loza is scheduled to appear in U.S. District Court Thursday afternoon. If convicted he faces up to 30 years in prison and a fine of up to $250,000 for each count. His attorney said Loza is not guilty and intends to fight the charges.
"Consistent with the standard practice in criminal investigations not to reveal in advance the issuance or execution of an arrest warrant or a search warrant, I was not made aware of the arrest of Mr. Loza nor the search of his office in the John A. Wilson Building before that happened," D.C. Council Chair Vincent Gray said in a written statement released Thursday afternoon. "I plan to have a conversation with Councilmember Graham to determine if the investigation will have any bearing on the broad operations of the Council, and how this may affect the work of his office and the Committee on Public Works and Transportation."
Earlier this week, the council passed a code of ethics for council members.
"The arrest of Jim Graham's chief of staff on bribery charges only reminds us that the DC Council's new ethic laws are as strong as a cup of tea," said D.C. Republican Committee Chair Robert Kabel. "District residents are suffering for the council's lack of leadership and ethics under Graham and Gray."
Return to NBCWashington.com for more information as it becomes available and watch News4 at 5 and 6 for the latest from Tom Sherwood, who first reported Loza's arrest.