Multi-Million Dollar Harvard University Scam
Jim Kouri, CPP
August 06, 2005
Harvard University is ordered to pay back over $20 million to the US government as part of a settlement deal resulting from a multi-million dollar scam. Two Harvard employees are also ordered make restitution bringing the total settlement to $31 million.
Two senior Harvard University advisors, Andre Shleifer and Jonathan Hay
were paid under a US Agency for International Development grant to lead a project
to provide advice to the nascent Russian economy on privatization following
the fall of communism and the creation of fair and open markets and the rule
of law. The US Attorney's Office alleged that instead, Shleifer and Hay used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests.
Under a settlement, the total repayments will exceed $31 million by Harvard University and it's two advisors. Specifically the settlement calls for Harvard to pay $26.5 million; Shleifer to pay $2 million; and Hay to pay between $1 million and $2 million. Also factored into the settlement amount total is $1.5 million already paid to the United States by FFIA, formerly known as Farallon Fixed Income Associates, LP, a company owned by
Shleifer's wife, Nancy Zimmerman. In addition, Shleifer and Hay have agreed to
be debarred by USAID.
The defendants were entrusted with the important task of assisting in the creation of a post-communist Russian open market economy and instead took the opportunity to enrich themselves. Such conflict of interest activities only
serve to undermine important development programs, according to officials.
As evidenced by the hard fought five-year litigation of this matter, the US Attorney's Office is committed to protecting federal funding from misuse and ensuring the adherence
to the requirements of government contracts.
"Improper use of federal grant programs for the purpose of self-enrichment will not be tolerated," said Peter D. Keisler, Assistant Attorney General for
the Civil Division. "[This] settlement demonstrates our commitment to fighting fraud and abuse against the United States wherever we find it."
The United States' case provided extensive evidence that, despite the clear terms of the agreements, Shleifer and Hay were making prohibited investments in Russia in the areas in which they were providing advice. The
United States government further demonstrated that Shleifer and Hay were self-dealing by
using their positions, as well as USAID-funded resources, to advance their own
personal business interests and investments and those of their wives and friends.
Their self-dealing activities included using their influence over the Russian Securities Commission to which they were key advisors to secure for
themselves and their wives the first ever launched and licensed mutual fund in Russia. The terms of the USAID grant strictly prohibited any investments in Russia by American advisors funded under the grant.
The Civil Complaint alleged, and the Court found, that while they were being paid by USAID, the two Harvard employees engaged in the following prohibited investments and businesses in Russia:
Shleifer and his wife Zimmerman invested and reinvested $200,000 through Renova-Invest, a United States/Russian investment entity, in
various Russian companies and in Russian government debt;
Shleifer, Zimmerman and Hay purchased several hundred thousand dollars worth of shares in Russian oil companies, but placed the
ownership of those shares in the name of Shleifer's father-in-law;
and
Hay and Shleifer participated in the launching and/or financing of: Russia's first licensed mutual fund, which was started by Elizabeth Hebert, Hay's then girlfriend, now wife; and Russia's
first licensed mutual fund depository, the First Russian Specialized Depository, which was started by Hebert's business partner and provided support services to the mutual fund.
The United States alleged and demonstrated that Shleifer, Hay and Harvard University never disclosed any of these prohibited personal business activities and/or investments to USAID.
The Civil Complaint alleged that as a result of the misconduct of the defendants, USAID funds expended on the Project were diverted, abused and
wasted. As a result of the defendants' misconduct, USAID suspended and ultimately terminated the HARVARD project in Russia.
"Conflicts of interest and corruption attack at the core of what USAID strives to achieve for developing nations throughout the world and are
certainly two of the most serious threats to the success of USAID sponsored
programs," stated Acting USAID Inspector General Bruce Crandlemire.
"Eight years of intensive investigation and tireless litigation on this case represents a firm and dogged commitment by the offices charged with the
protection of federal dollars to the principle that power and influence does not provide a free pass to those who would attempt to exploit their positions of public trust for private gain."
After extensive summary judgment briefings, US District Judge Douglas P. Woodlock, in a one hundred-page opinion, found liability against Shelifer and Hay under the False Claims Act, and against Harvard University for breach of contract
with USAID. At a federal civil trial, a jury found additional liability against Shleifer for his violation of the conflict of interest policy in USAID's contracts with Harvard.
Two senior Harvard University advisors, Andre Shleifer and Jonathan Hay
were paid under a US Agency for International Development grant to lead a project
to provide advice to the nascent Russian economy on privatization following
the fall of communism and the creation of fair and open markets and the rule
of law. The US Attorney's Office alleged that instead, Shleifer and Hay used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests.
Under a settlement, the total repayments will exceed $31 million by Harvard University and it's two advisors. Specifically the settlement calls for Harvard to pay $26.5 million; Shleifer to pay $2 million; and Hay to pay between $1 million and $2 million. Also factored into the settlement amount total is $1.5 million already paid to the United States by FFIA, formerly known as Farallon Fixed Income Associates, LP, a company owned by
Shleifer's wife, Nancy Zimmerman. In addition, Shleifer and Hay have agreed to
be debarred by USAID.
The defendants were entrusted with the important task of assisting in the creation of a post-communist Russian open market economy and instead took the opportunity to enrich themselves. Such conflict of interest activities only
serve to undermine important development programs, according to officials.
As evidenced by the hard fought five-year litigation of this matter, the US Attorney's Office is committed to protecting federal funding from misuse and ensuring the adherence
to the requirements of government contracts.
"Improper use of federal grant programs for the purpose of self-enrichment will not be tolerated," said Peter D. Keisler, Assistant Attorney General for
the Civil Division. "[This] settlement demonstrates our commitment to fighting fraud and abuse against the United States wherever we find it."
The United States' case provided extensive evidence that, despite the clear terms of the agreements, Shleifer and Hay were making prohibited investments in Russia in the areas in which they were providing advice. The
United States government further demonstrated that Shleifer and Hay were self-dealing by
using their positions, as well as USAID-funded resources, to advance their own
personal business interests and investments and those of their wives and friends.
Their self-dealing activities included using their influence over the Russian Securities Commission to which they were key advisors to secure for
themselves and their wives the first ever launched and licensed mutual fund in Russia. The terms of the USAID grant strictly prohibited any investments in Russia by American advisors funded under the grant.
The Civil Complaint alleged, and the Court found, that while they were being paid by USAID, the two Harvard employees engaged in the following prohibited investments and businesses in Russia:
Shleifer and his wife Zimmerman invested and reinvested $200,000 through Renova-Invest, a United States/Russian investment entity, in
various Russian companies and in Russian government debt;
Shleifer, Zimmerman and Hay purchased several hundred thousand dollars worth of shares in Russian oil companies, but placed the
ownership of those shares in the name of Shleifer's father-in-law;
and
Hay and Shleifer participated in the launching and/or financing of: Russia's first licensed mutual fund, which was started by Elizabeth Hebert, Hay's then girlfriend, now wife; and Russia's
first licensed mutual fund depository, the First Russian Specialized Depository, which was started by Hebert's business partner and provided support services to the mutual fund.
The United States alleged and demonstrated that Shleifer, Hay and Harvard University never disclosed any of these prohibited personal business activities and/or investments to USAID.
The Civil Complaint alleged that as a result of the misconduct of the defendants, USAID funds expended on the Project were diverted, abused and
wasted. As a result of the defendants' misconduct, USAID suspended and ultimately terminated the HARVARD project in Russia.
"Conflicts of interest and corruption attack at the core of what USAID strives to achieve for developing nations throughout the world and are
certainly two of the most serious threats to the success of USAID sponsored
programs," stated Acting USAID Inspector General Bruce Crandlemire.
"Eight years of intensive investigation and tireless litigation on this case represents a firm and dogged commitment by the offices charged with the
protection of federal dollars to the principle that power and influence does not provide a free pass to those who would attempt to exploit their positions of public trust for private gain."
After extensive summary judgment briefings, US District Judge Douglas P. Woodlock, in a one hundred-page opinion, found liability against Shelifer and Hay under the False Claims Act, and against Harvard University for breach of contract
with USAID. At a federal civil trial, a jury found additional liability against Shleifer for his violation of the conflict of interest policy in USAID's contracts with Harvard.
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