Harvard Faces Another HIID Suit

A company that administers mutual funds is suing Harvard for fraud allegedly committed by leaders of the now-disbanded Harvard Institute for International Development (HIID).

The complaint was filed three days ago in Maine district court, just one month after a $120 million U.S. government lawsuit against the University was filed.

The Forum Financial Group, based in Portland, Maine, claims that Professor of Economics Andrei N. Shleifer '82, the principal investigator of HIID, and Jonathan R. Hay, HIID general director, used their leadership roles to reap personal gain from HIID's Russian capital markets program.

In the suit, the company contends that Hay and Shleifer used federal funds allocated through HIID to bribe Russian government officials with "cash, no-show jobs, exorbitant and unjustified compensation and benefits, and exorbitant and unjustified housing allowances." The Russian officials, the suit contends, deposited these payments in foreign bank accounts to evade taxation.

After paying off the Russian officials, the complaint says, Hay was able to secure the rights to Russia's first mutual fund for Forum with Shleifer's assistance. Forum says Hay forced the company to sell its interest in the fund, enabling him to purchase it himself through a third party.

The company claims in the brief that it lost "the profits and value of The First Russian Specialized Depository [a company created in the dealings] and the financial benefit [Forum] would have received from an increase in their international business" as a result of Shleifer and Hay's alleged wrongdoing.

Hay's lawyer contested these claims.

"Mr. Hay acted completely appropriately in connection with Forum Financial," said David M. Zornow of the New York law firm Skadden, Arps, Slate, Meagher and Flom. "Everything he did was known to and approved by Russian government officials whom he was advising. It was those officials who decided what action should be taken with Forum Financial. The lawsuit is frivolous."

Shleifer could not be reached for comment.

The suit also argues that Harvard was negligent in the matter because it "owed a duty to the plaintiffs to supervise, oversee, and manage Shleifer's and Hay's operation of its Russia Program, including the Specialized Depository Project, with reasonable care" and "breached its duty of care."

Harvard officials contested the legality of this claim.

"[The suit] is baseless," said University spokesperson Joe Wrinn. "The contract was between Forum Financial and the Russian government, and there was a release signed and a payment made [when Forum sold its interest]. You can't have it both ways."

Harvard General Counsel Anne H. Taylor stressed the University's distance from the scandal.

"We never even heard of [Forum]," she said. "At the end of the day, Harvard will not be liable."

Neither Taylor nor Forum's lawyers would comment on Hay and Shleifer's liability. Taylor said Harvard has not decided whether it will file a motion to dismiss the suit.