Feds' Case Against Harvard Inches Ahead

BOSTON—Harvard and the U.S. government last week moved closer to a jury trial in federal court which would determine damages owed by the University for violating its contract with the government while helping to privatize the Russian economy in the 1990s.

At the same time, former Harvard employee Jonathan Hay appeared near a settlement with the government, according to papers filed with the court.

Hay and Jones Professor of Economics Andrei Shleifer ’82 were found in June to have “conspired to defraud” the government while serving as lead advisers to the Russia program—commissioned by the U.S. Agency for International Development—at the now defunct Harvard Institute for International Development.

Lawyers for the U.S. district attorney’s office in Boston argued the two economists violated the conflict-of-interest provision in their contracts when they made personal investments in Russia while advising the privatization program.

The University was absolved of fraud charges but could still face breach-of-contract damages of up to $34.8 million, the amount paid to Harvard by the government after Shleifer’s first improper investment in July 1994.

In a small victory for Harvard on Thursday, U.S. District Court Judge Douglas P. Woodlock said a jury would have to determine the extent of damages owed by the University, dismissing the government’s contention that Shleifer and Hay’s improprieties undermined the entire project.

But Woodlock hoped to see the parties reach a settlement before the case comes in front of a jury sometime next year.

Assistant U.S. Attorney Sara M. Bloom told Woodlock that settlement talks with Harvard’s lead attorney, Paul F. Ware, had stalled over the summer.

“We had both agreed that the ball was in his court,” Bloom said.

But Woodlock, himself a former assistant U.S. attorney, appeared nonplussed, scoffing at Bloom’s “tennis metaphors” and ordering the government to make written settlement demands to Harvard and Shleifer by this Thursday. The two defendants, in turn, must respond with counteroffers by the end of the month.

In a phone interview on Friday, Ware declined to comment on possible settlement negotiations, citing a desire to keep the University’s legal strategy private, but said Harvard would be ready to go to trial if no agreement were reached with the government.

“To the extent that such a trial is going to take place,” Ware said, “we will of course be prepared to go forward.”

University spokesperson Joe Wrinn moderated the interview with Ware by telephone.

Shleifer, who declined to be interviewed on Friday, also faces a three-day trial, slated to begin Dec. 6, which would determine the unresolved issue of the professor’s status in the Russia program at the time of his investments.

Although Shleifer was a lead adviser to the program, his lawyers, Benjamin E. Rosenberg ’81 and Robert L. Ullman ’77, have argued that he was not “assigned to” Russia and therefore not bound by rules which prohibited investments in the country.

Hay, who was found to have committed the most serious violations in Woodlock’s summary judgement in June, would nonetheless face the same potential penalties as Shleifer, the judge said Thursday.