Shleifer to Face Jury in New Phase of Lawsuit

Jones Professor of Economics Andrei Shleifer ’82 will face a federal jury this week to resolve a small but potentially crucial sticking point in the U.S. government’s fraud suit against him.

Shleifer, who has already been found liable for “conspiring to defraud” the government, will defend himself against a second, narrower fraud charge in the trial, which begins today.

At issue is whether Shleifer—the lead adviser for Harvard’s project to rebuild the Russian economy in the 1990s—was technically “assigned to” Russia, as defined by the University’s contracts with the U.S. Agency for International Development (USAID).

In June, Shleifer and former Harvard employee Jonathan Hay were found liable for fraud arising out of personal investments made in Russia while they advised the privatization program.

Under the second charge of fraud, Shleifer could also be found liable for violating the conflict-of-interest provision in USAID’s contracts with the Harvard Institute for International Development (HIID).

Shleifer and Hay could each face triple damages of up to $104 million arising from their liability under the False Claims Act, although the damages—to be assessed at a later trial—will likely be a fraction of that amount.

The University was cleared of fraud charges in June but still faces breach-of-contract damages of up to $34.8 million, the amount paid out under the two USAID contracts after the improper investments began in 1994.

Harvard’s fate in the lawsuit is not directly at stake in this week’s trial, but the University has played a major role in Shleifer’s defense and will argue on his behalf in the trial.

Shleifer has asked Harvard to pay his legal fees and any damages ultimately levied against him, according to an October report in The Wall Street Journal. But a spokesman for the University, Joe Wrinn, would not comment on whether any such arrangement exists.

In briefs co-signed by lawyers for both Shleifer and Harvard, the defense has sought to severely limit the scope of this week’s trial, which is expected to last through Thursday. Only the definition of “assigned to,” they argued, is relevant to the jury.

“The question is how much context do we have?” U.S. District Court Judge Douglas P. Woodlock said at a hearing last week. “We can start, I suppose, in the 17th century with the creation of Harvard College. That’s part of the larger context, I suppose, and the later arrival of the United States government.”

“But that, it seems to me, is a context beyond what we need for these purposes,” said Woodlock, famous for his dry wit on the bench.

But in a concession to the government, Woodlock said he would allow testimony and evidence which might provide background beyond the specific interpretation of Shleifer’s contract.

Among the prosecution’s witnesses, prominent development expert Jeffrey D. Sachs ’76, former director of HIID, is likely to testify that all advisers to the Russia project, including Shleifer, were expected “to refrain from investments in the countries to which they were being funded to provide advice,” according to a motion filed with the court.

The defense has indicated they will counter that because Shleifer was based in Cambridge while serving as adviser the project, he was not “assigned to” Russia. Rolling out their own former HIID director, lawyers for Shleifer and Harvard will call Dwight H. Perkins, the Burbank professor of political economy, to testify that USAID’s conflict-of-interest provision did not apply to Shleifer and others working on the project in Cambridge.

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