Documents Out In HIID Lawsuit

Nearly two years after the federal government filed a $120 million lawsuit against Harvard alleging a University-run program in Russia had defrauded the United States, the government released hundreds of pages of evidence supporting its allegations on Wednesday.

The release of information came as the U.S. Attorney’s Office asked Federal District Court Judge Douglas P. Woodlock immediately to find Harvard—along with Professor of Economics Andrei Shleifer ’82 and former Harvard employee Jonathan Hay—liable for $102 million in damages before the case even goes to trial.

The government alleges Shleifer and Hay, advisors with a program operated by the now-defunct Harvard Institute for International Development (HIID) seeking to ease Russia’s economic transition to capitalism, used their positions for personal gain.

The federal government, which provided $50 million in funding for the project through the U.S. Agency for International Development (USAID), said that Shleifer and Hay had engaged in unethical behavior and breached agreements with the government by investing hundreds of thousands of dollars in Russian companies. The government contends that these companies were directly affected by Shleifer’s and Hay’s advice.

The Boston Globe reported that the federal documents filed this week allege Shleifer invested $464,000 in Russian assets.

The government also alleges the University should have been more vigilant in preventing Shleifer and Hay from taking such actions, thus sharing in the liability for the pair’s allegedly fraudulent actions.

Attorneys for Harvard, Shleifer and Hay vigorously disagree with the government’s allegations.

Much of the evidence newly disclosed in the legal motion filed with the court comes from the depositions of dozens of witnesses completed as part of pre-trial procedures.

One of those whose deposition was included in this week’s filing was that of high profile Stone Professor of International Trade Jeffrey D. Sachs ’76, who headed HIID from 1995 to 1999. Sachs has consistently emphasized his lack of knowledge of impropriety in the Russian program.

Sachs will leave Harvard at the end of this month to take a position at Columbia University.

According to the Globe, Sachs stated in his deposition that any investment in Russian companies by HIID staff would have been unethical. He also reportedly said that if he had headed HIID earlier and known about Shleifer’s investments in Russia, he would have ended Shleifer’s involvement advising the Russian government.

Since the suit’s filing in September 2000, Harvard and the government had been negotiating to reach a settlement. The Globe reported these settlement talks have now broken down, leading the government to ask the judge for an immediate verdict against the University. Harvard has also asked the judge to make an immediate decision in the case—requesting the court clear the University of all allegations of wrongdoing.

Harvard defended the work done by HIID to the court.

“USAID routinely praised HIID’s efforts, calling the work historic and extremely successful,” Harvard lawyers wrote in a motion submitted to the court. “Now...USAID says that all of HIIDs work in Russia was rendered valueless by a handful of nominal personal investments made by Andrei Shleifer and Jonathan Hay while they were serving as advisors to the Russian government.”

In the court filing, the lawyers also called the allegations overreaching and without legal merit.

Harvard University spokesperson Joe Wrinn declined to comment on the case beyond the documents filed with the district court.

HIID, which took shape in the 1960s to provide counseling and expertise to help developing countries improve their economies, included Harvard faculty members as project participants and advisers.

The institute was disbanded in June 2000, upon the advice of a committee of top University administrators to then-Provost Harvey V. Fineberg ’67.

While the administration said the decision had nothing to do with the federal government’s investigation of HIID, the committee’s report said that “overseeing a large number of advisory projects located throughout the world” had become a “formidable challenge” for Harvard.

—Staff writer Alexander J. Blenkinsopp can be reached at blenkins@fas.harvard.edu.