Boston Globe
August 4, 2005
Harvard, teacher, and lawyer to pay US $30m
By Marcella Bombardieri, Globe Staff
Harvard University, a Harvard professor, and a former staff member have
agreed to pay the US government about $30 million, a year after a federal
judge ruled that economist Andrei Shleifer and lawyer Jonathan Hay
conspired to defraud the government by making personal investments in
Russia while they were under contract to serve as impartial advisers on
Russian economic reform in the mid-1990s.
Although the Department of Justice sued five years ago, seeking $120
million in damages, the government is recouping in the settlement most of
the $34 million it paid Harvard for its work in Russia while Shleifer and
Hay were making investments.
Neither the university, Shleifer, nor Hay admitted liability as part of the
settlement, which Harvard officials said was the largest the university has
ever paid.
''The defendants were entrusted with the important task of assisting in the
creation of a post-communist Russian open market economy and instead took
the opportunity to enrich themselves," US Attorney Michael J. Sullivan said
in a statement yesterday. ''As evidenced by the hard-fought, five-year
litigation of this matter, the US attorney's office is committed to
protecting federal funding from misuse and ensuring the adherence to the
requirements of government contracts."
Harvard agreed to pay $26.5 million, while Shleifer will pay $2 million.
Hay, now a lawyer in London, will pay between $1 million and $2 million,
depending upon his earnings over the next 10 years. Shleifer and Hay were
top officers of the law reform project at the now-defunct Harvard Institute
for International Development, which was under contract with the US Agency
for International Development from 1992 to 1997.
The settlement in the civil case prohibits Harvard from paying either
Shleifer's or Hay's portion of the costs.
It was announced in June that an agreement was imminent, but the terms had
not been worked out. In a separate but related case, FFIA, a Cambridge
investment firm partly owned by Nancy Zimmerman, Shleifer's wife, agreed
last year to pay $1.5 million to settle the government's charge that the
firm had improperly used the development institute's resources.
In separate statements, the university and the two men said essentially
that they were settling to avoid the costs of protracted litigation.
Harvard pointed out that Judge Douglas P. Woodlock dismissed the most
serious charge against the university, that it had knowingly deceived the
government, and found only that it had violated its contract by virtue of
Shleifer and Hay's conduct, of which Harvard was not aware.
''We welcome having this matter behind us," Harvard general counsel Robert
W. Iuliano said in a statement. ''Over the course of the litigation, the
court has affirmed our position that the university engaged in no
institutional wrongdoing."
Shleifer said in a statement that ''an individual can fight the unlimited
resources of the government for only so long. . . . I strongly believe I
would have prevailed in the end, but my lawyers told me my legal fees would
exceed the amount that I will be paying the government."
In particular, Martin F. Murphy, Shleifer's lawyer, took issue with
Sullivan's statement that Shleifer had taken advantage of his position to
enrich himself.
''After eight years of searching, the government still has no evidence to
support that contention -- because it is simply not true," Murphy wrote in
a statement. ''Professor Shleifer worked in Russia because he wanted to
help his native country move from communism to a market economy, and as
USAID has repeatedly acknowledged, Professor Shleifer's work was extremely
valuable."
Hay's lawyer, Lawrence S. Spiegel, also defended the value of Hay's
contributions in Russia. ''While Mr. Hay continues to believe passionately
in the work that he and others performed in Russia, his fight with the US
government has involved considerable sacrifice," Spiegel said in a
statement. ''Mr. Hay has thus decided to move forward with his life and
settle this dispute."
The Harvard project was designed to help rebuild the Russian economy. The
international development institute's contract had a conflict-of-interest
provision prohibiting employees from making investments in Russia. Shleifer
has argued that he was a consultant, not an employee.
Among Woodlock's findings was that Shleifer and Zimmerman invested $200,000
in Russian companies and Russian government debt and that Shleifer,
Zimmerman, and Hay bought several hundred thousand dollars worth of shares
in Russian oil companies, but in the name of another individual.
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