Feds Win Dispute In HIID Lawsuit

BOSTON—The U.S. government won a small victory yesterday in its ongoing lawsuit against Jones Professor of Economics Andrei Shleifer ’82 and Harvard as a federal jury determined that Shleifer was bound by crucial wording in the University’s contracts with the U.S. Agency for International Development (USAID) in the 1990s.

In what ultimately amounted to a semantic dispute, featuring four dictionaries and conflicting testimony among current and former Harvard professors, the jury concluded Shleifer was in fact “assigned to” Russia when he served as lead adviser to a Harvard Institute for International Development program which helped privatize the Russian economy after the fall of the Soviet Union.

The decision in U.S. District Court is likely to resolve a second count of fraud against Shleifer. The count largely hinged on whether Shleifer, a star in the economics department, was bound by a conflict-of-interest provision that barred employees from making investments in countries to which they were “assigned.”

Shleifer and former Harvard employee Jonathan Hay were found in June to have “conspired to defraud” the government by making personal investments in Russia while advising the privatization program.

The University was absolved of fraud charges in June but could still face damages of up to $34.8 million, the amount paid to Harvard by USAID after the first improper investment in July 1994. Shleifer and Hay could each face treble damages of up to $104 million, though any judgement is likely to be much less than that, and Hay’s lawyers have said their client is near a settlement with the government.

Yesterday’s decision, though crucial in the lawsuit’s progress, is likely to have little impact on the ultimate monetary damages for which Shleifer and the University could be held liable.

“The case resolves one small contract issue in a very long-standing dispute,” Robert L. Ullman ’77, one of Shleifer’s lawyers, said in an interview last night. “It may well have no impact on the ultimate result of the case.”

Harvard’s fate in the lawsuit did not appear to be immediately at stake in this week’s trial, but the University nonetheless played a major role in Shleifer’s defense and argued on his behalf in court.

In a brief statement yesterday, the University dismissed the potential impact of the jury’s decision.

“Today’s verdict related to a narrow and technical issue in the case,” said Harvard spokesman Joe Wrinn. “Harvard remains confident that as the matter proceeds we will demonstrate that the work on the Russia Project was of great value to both the Russian Federation and the United States government.”

A far more extensive trial, which would likely not occur before next fall, would be necessary to determine the extent of damages owed by Shleifer and Harvard. In September, U.S. District Court Judge Douglas P. Woodlock dismissed the government’s contention that Shleifer and Hay’s improprieties undermined the entire project. He said a jury would have to determine both parties’ liability.

Wrinn would not say whether the University was or would be engaged in settlement discussions with the government.

The jury of 12 announced their verdict with little fanfare shortly after 10:45 a.m. yesterday, following roughly two and a half hours of deliberations.

Waiting in the courtroom before the jury returned with its verdict, lawyers on both sides speculated among themselves as to how the jury had decided.

“What’s your instinct?” asked Benjamin E. Rosenberg ’81, another of Shleifer’s lawyers.

“That justice has been served,” replied Assistant U.S. Attorney Sara M. Bloom with a shrug.

“My instinct is that it hasn’t been,” Rosenberg said.

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