Harvard, Shleifer Settle Fraud Suit

Harvard and its star economist Andrei Shleifer ’82 said earlier this month they had reached a tentative settlement with the U.S. government in a five-year-old fraud suit that has spanned two continents and embarrassed both the University and the professor.

The terms of the settlement were not announced, and the parties said several details still need to be resolved. At a hearing in U.S. District Court on Monday, June 13, Judge Douglas P. Woodlock gave the parties 60 days to ink the deal.

The agreement came nearly a year after Woodlock found Shleifer, who is the Jones professor of economics, and Jonathan Hay, a former Harvard employee, liable for conspiring to defraud the government. The two men made personal investments in Russia while advising a U.S.-funded program to privatize the economy there in the 1990s.

Harvard itself was cleared of the fraud allegations but still faced damages of up to $34.8 million for breaching its contract with the U.S. Agency for International Development. Shleifer and Hay faced treble damages of as much as $104 million each.

In September, Hay’s lawyers said they were near a settlement with the U.S. Department of Justice. But Shleifer and the University continued to fight the government until mid-June.

Lawyers on both sides of the case would not comment on the agreement, and there was no indication as to the extent of damages or whether Harvard, Shleifer, or Hay would admit wrongdoing under the settlement. Spokespeople for Harvard and the U.S. district attorney’s office said that the terms of the settlement would be made public once it is signed.

The June 13 hearing, originally scheduled for March, was postponed four times, most recently on the first of this month. That delay, according to a Harvard official who has been briefed on the case, was a public-relations move intended to push the settlement announcement until after Commencement, when the news would receive less attention.

The Harvard official spoke on the condition of anonymity because the University’s strategy in the case is considered private.

The lawsuit has been a thorn in the University’s side ever since the government terminated its contract with Harvard in 1997. The Harvard Institute for International Development, which had run the Russia program, folded in the wake of the scandal, and Shleifer’s reputation was suddenly undermined.

The University fired Hay after the program ended prematurely, but has not announced any discipline of Shleifer, who continues to teach at Harvard.

University President Lawrence H. Summers is a close friend of Shleifer, but has officially recused himself from dealing with the case.

Harvard and Shleifer faced separate ultimate judgments, but as a practical matter, their fates were intertwined. Lawyers for both the University and the professor worked closely since the start of the lawsuit, and Harvard participated in Shleifer’s defense at a brief trial this December that resolved a technical issue in the case.

—Staff writer Zachary M. Seward can be reached at seward@fas.harvard.edu.