U.S. Government Files $120 Million Suit Against Harvard

The U.S. Government filed a $120 million suit against Harvard University yesterday, claiming it was defrauded in a $40 million federal foreign aid program in Russia administered by Harvard.

The suit, announced by United States Attorney Donald K. Stern at a Boston press conference yesterday, culminates a three-year civil and criminal investigation into possible wrongdoing in the aid program.

Several individuals associated with the University, including a current professor, are also named as defendants.

The now-defunct Harvard Institute for International Development (HIID) administered the program.

The suit claims the University failed to provide adequate supervision for the program, allowing the other defendants to profit illegally by investing in the Russian economy.

The U.S. Attorney's Office maintains that Harvard's contract required it to closely supervise its agents but does not claim that Harvard profited in any way.

"The United States bargained for a level of administration and supervision," Stern said. "Harvard had obligations, as any grantee does, and it failed to [follow through]."

But Harvard said the government is expecting unreasonable levels of supervision, noting that even the U.S Attorney's office said the other defendants made significant efforts to conceal their actions.

"Harvard and the government have very different understandings of the law and of equity," said Vice President and General Counsel Anne Taylor. "[The government] says whether you know [about illegal activities] or not, you're responsible. I disagree."

The suit alleges that, at times, Harvard aid program administrators knew of questionable actions but ignored them.

"Harvard administrators were aware of abuses and allowed them to continue," the suit reads.

However, Harvard denies these claims.

"I can assure you that any individuals in a position who could do something about [the allegations] were not aware of them," said Joe Wrinn, the University spokesperson.

Both Wrinn and Taylor noted that the government had previously praised the advice given by Harvard's Russian aid project, making it hard to understand the government's decision to sue--especially for such a large sum of money.

But Stern said the value of any advice given was irrelevant, emphasizing that overall results do not absolve Harvard from its supervisory responsibility.

In addition to the University, the suit names Professor of Economics Andrei Shleifer '82, his wife Nancy Zimmerman, former Harvard employee Jonathan Hay and his wife Elizabeth Hebert as defendants. Shleifer was principal investigator and project director of the aid program and Hay was the general director.

The suit claims that while providing economic and legal advice for the development of Russian capital markets, the individual defendants violated conflict-of-interest rules prohibiting them from investing in the Russian economy. The suit claims they even diverted U.S. government resources for their own use.

The complaint alleges that Shleifer and Zimmerman invested $200,000 in various Russian companies and Russian government debt. In addition, the couple and Hay allegedly purchased "several hundred thousand dollars worth" of shares in Russian oil companies in the name of Shleifer's father-in-law.

The complaint also includes claims that all four individuals used their position to gain official approval to launch mutual funds in Russia. Hay and Zimmerman are also accused of using U.S. government-funded staff and offices for purposes like performing research for their private oil investments.

Lawyers for the individual defendants said the government's suit is misguided.

"There is no substance to what was alleged," said Hebert's attorney Lloyd Macdonald.

HIID, the Harvard organization that administered the program, was disbanded July 1. The move was recommended to Provost Harvey V. Fineberg '67 last winter by a special University taskforce. Administrators said the decision was not influenced by the alleged improprieties in the Russian program.

However, the report said that "overseeing a large number of advisory projects located throughout the world" had become a "formidable challenge" for Harvard. This lack of oversight was one of the chief complaints of the lawsuit.

The taskforce suggested increasing oversight by placing the programs under some of the various graduate schools. Many of the programs that were not discontinued were transferred to the Kennedy School of Government.

Stern said the U.S. Attorney's office had been in discussion with Harvard before filing suit, but termed these discussions as "not satisfactory."

Taylor said the negotiations were hindered by the government's reluctance to share their evidence. But she added Harvard would consider renewing discussions.

The sum sought in the lawsuit is one of the largest Taylor could remember in her 17 years with the University.